SEC Filing link
(Year end Mar. 31)
Nov. 28. 2007
Summary:
The company suffers a lot of decrease in earnings in the recent two quarters. They had a quite good earning history. It says in their quarterly report that the reason is from three cost increase: Resin price, Labor, and RMB appreciation. I am trying to figure out each of them counted for how much of the losses. In my opinion, the resin cost increase should not be counted as a permanent factor to their business. They already start a price increase based on it.
Q2 2008 (End Sept.30, 2007) revenue decrease analysis:
Assumptions:
1. Based on their employee number of 4000 in plastic product and 2400 in electronic product. Assume they have 3800 workers and 2200 worker in both segment respectively.
2. Their worker's average cost is CNY1500 a month.
3. Resin price increased by 15% in 2007 compared to 2006. (I searched on some website and estimate this number. It turns out working very well in the following calc).
Three months compare to Q2 2007.
1. Total cost increased 2.9m.
2. Labor cost increased 3800x(1500/7.5)x3x17.2% + 2200x(1500/7.5)x3x22.7% = 0.7m
3. RMB appreciation increased cost around 38.4x2.7% = 1m.
4. Resin cost increased around 38.4x20%x15% = 1.15m.
Six months compare to Q2 and Q1 2007
1. Total cost increased 6.3m.
2. Labor cost increased 3800x(1500/7.5)x6x15.9% + 2200x(1500/7.5)x6x30.2% = 1.5m
3. RMB appreciation increased cost around 76.9x3.1% = 2.4m.
4. Resin cost increased 76.9x20%x15% = 2.3m
As you can see, the 2+3+4 is so close to 1. Except for my 3 assumptions. All the other numbers are from their reports or calc from their reports.
Fact:
1. The last 3 quarters real earning is 30 cents. Last 4 quarters real earning is 54 cents. If this trend continues. Their earning will be around 40 cents per year. But they will increase their price for sure. This should not be used to calc their intrinsic value.
2. Book value now $7.47 per share. If take a 50% discount on their plant $60mx50% = 30m, It still worthies $5.57.
3. They don't have any debt.
4. They pay quite a lot of dividends and has a long dividend history.
5. Compared to 2005. They had a big customer(vTech) didn't have a contract with them in 2006. Another (Epson) didn't have a contract with them in 2007. This might count 10%-15% of their revenue. That is why they performed better in 2005. In 2007, they added Peavey(10% of revenue). But it is in the electronic segment which has the low margin(10%).
Risk:
1. They just had a new CEO try to put more weight on electronic segment(now 55% and still increasing) which has a low profit margin(10%). They also put a lot of weight on R&D their own audio device product. Their growth is depending on the performance of their electronic segment and their audio device. If it doesn't go well, their might suffer big losses. According to their past, I believe their chance to do well is higher than go worse.
2. The RMB continue to appreciate against the $US and labor cost continue to increase. This is almost for sure but will be more modest and will not affect them that much as in current year. It will definitely affect their margin in the future.
3. Resin price continue to fluctuate. They will gain or suffer lost. But in a long run, this should not be counted as a permanent factor. Since every factory will has the same problem and eventually the cost of resin will be reflected in the final product.
4. Their price increase drive their customer away. It is possible if they increase their price too much. A modest raise based on resin cost should be fine.
5. Their big customers hold their contract for some years. In a single year, it has a bad effect. In a multiple year base, it should be fine.
Conclusions:
1. Assuming their resin cost increase should be covered by price increase in product. This will give them a 29c/year more in revenue. Plus current 40c/year revenue. They will have a 69c/year revenue.
2. Due to the appreciation of RMB and increased labor cost( this should not be added to final product price). It is hard for them to get the average 80c/year earning in the past.
3. This give them a intrinsic value of 0.69x15 = $10.35. At a price of $6.21 (40% off), it is a bargain.
Updated:
Feb. 29, 2008
Feb. 29, 2008
Q3 2008(End at Dec. 31, 2007) data has been released. Let's see whether previous formula still works.
Three months compare to Q3 2007.
1. Total cost has not increased.
2. Labor cost increased 3800x(1500/7.2)x3x12.9% + 2200x(1500/7.2)x3x22.6% = 0.6m
3. RMB appreciation increased cost around 35.4x2.7% = 1m.
4. Resin cost is not mentioned..
Nine months ending compare to Q3 2007
1. Total cost increased 6.3m.
2. Labor cost increased 3800x(1500/7.2)x9x15% + 2200x(1500/7.2)x9x25.6% = 2.1m
3. RMB appreciation increased cost around 112.3x3.2% = 3.6m.
4. Resin cost is not mentioned. use previous 6 months data: 2.3m
Facts:
1. Real earning is 2.7m. Which is 17c/share.
2. Q3 Revenue: 35.4m.
3. Share outstanding: 15.8m
4. SG&A increased by 0.3m.
5. Dividend 17c.
You can see the cost calc is not working anymore. In Q3, The Labor and RMB cost count for 1.6m. But the overall cost has not increased. The night months cost also has a 1.6m unbalanced.
If takes off the 1.6m from its 2.7m Q3 earning. Add the 0.3 SG&A cost increase. It would have 1.4m. Which is 9c per month. Added previous 3 quarter's 30 cents earning. It come out as 39c. Not too far from my previous estimate 40c pre year.
So revenue improved by 1.6-0.3=1.3m this quarter. It is close to my calc of how much they could get from price increase only. However, according to the report, it is a combine of closing low margin productions, reducing manufacturing costs, changing in customer and product mix, price increase on some production. This means price increase is not ended yet. It mentioned in the report that there will be a price increase in the coming quarter.
Conclusions:
They are doing better than I have expected. Continue to hold.
Mar. 03, 2009
Q3 2009 data
Recent price $1.6. For the past several quarters:
Q4 2008 income: 0.12 per share. dividend 0.12 per share.
Q1 2009 income: 0.08 per share. dividend 0.08 per share.
Q2 2009 income: (0.11) per share. dividend 0.00 per share.
Q3 2009 income: 0.06 per share. dividend 0.04 per share.
June 2010
Q3 2010 data
Recent price around $3.75. This is the longest I have hold(since 2007). Redo the check list since previous study were pretty useless.
Check list:
1.Major Business.
Funded in 1987 by Richard Lau, Chin Pang Li, Chi Wai Leung. IPO at 1996.
Plastic injection molding: 50% -- 50% JetCrown Industrial.
Electric and Audio device: 50% -- 50% Kwan Hong Electronics.
Major customers include:
N&J Company Limited (Nintendo (NTDOY.PK)),
Digidesign, Inc. (pro audio),
VTech Telecommunications Limited (wireless telephones),
Inter-Tel Incorporated (communications solutions),
Peavey Electronic Corp. (pro audio)
2.Price/Book ratio.
Book value 123m/16.2m = $7.59.
3.Current ratio. Debt/Current Asset ratio. Debt maturity and interest. Inventory level.
Currently no debt. Cash per share $2.81. Current inventory 16m.
Currently no debt. Cash per share $2.81. Current inventory 16m.
4.P/E ratio. Deficit check. Sales/Price ratio.
Average earning for past 5 years(2009-2005): (0.08+0.57+0.81+0.59+1.02)/5 = $0.61
Current Sales/Price: 90m/60m = 1.5.
5.Dividend history.
2005-2009: $0.65, $0.63, $0.65, $0.61, $0.24.
2005-2009: $0.65, $0.63, $0.65, $0.61, $0.24.
Q1 - Q3 2010: $0, $0.10, $0.
6.Free Cash flow
2005 2006 2007 2008 2009 Q1 Q2 Q3
FCF : $11.3m $5.4m ($0.5m) $9m $4.6m $6.3m $11.4m* $0.7m
Dividend: $10m $8.4m $12.4m $9.5m $3.8m $0 $0* $0
*Q2 2010 FCF includes $5.5m from sale of Shenzhen building. Also around $1.6m dividend payment due is not recorded.
Since 2001 the company invest over $57m on DongGuang manufacture building. Phase 1,2,3 finished. Phase 4 is likely postponed currently.
7.Grows related.
Revenue from 2005 to 2009: 125m, 115m, 136m, 143m, 131m.
First 3Q of 2010 sales down 40% to 65m compare to 104m last year.
8.SG&A, R&D expense.
No big hike on SG&A number. In a down turn, management would take action to cut cost.
9.Management compensation. Options.
2009: $1.9m for 7 executes (include 2 retired and 1 died).
No big hike on SG&A number. In a down turn, management would take action to cut cost.
9.Management compensation. Options.
2009: $1.9m for 7 executes (include 2 retired and 1 died).
2008: $2.5m for 7 executes
2007: $3.2m for 7 executes
2006: $2.2m for 6 executes
2005: $3.5m for 7 executes (include one retired director)
10.Buy back, insider holding and trading info.
Richard Lau( Chairman, former CEO) 1.35 shares. 8.5%
Chin Pang Li(Admin for Plastic): 1.15m shares. 7.3%
Chi Wai Leung:(Engineering for Plastic): Resigned at Jan. 01, 2009.
Shu Kwan Lee: (Previous CEO of electronics): Retired at May. 01, 2009
Man Chi Tam: (Manufacturing for electronics) died at Feb 23, 2009.
11.Employee numbers. Revenue/Employee. Compensation/Employee.
not important
12.Industry comparison.
Nam Tai Electronics (Ticker: NTE)
13.Major events.
Feb. 2007: Frankie Tse succeeded Richard Lau as new CEO.
Aug. 2008: Betty Lam replace Eliza Pang as new CFO.
Dec. 2008. Founder Chi Wai Leung resigned at age 53. Addressed personal reason to relocate oversea. He has 1.15m shares at that time. Reduced to below 5% at June 30, 2009
Feb. 23, 2009: Man Chi Tam died at age 59. He has 362k share at that time
April 29, 2009: Shu Kwan Lee retired at age 62. No share number is mentioned. At 2008 his share is around the same as Man Chi Tam.
Mar 31, 2010: Reduce quorum of meeting from 50% of total shares to 33.3%.
14.Others.
About land and building:
(1)ShenZhen 10.368k sqm factory building
At 2000 bought at RMB 12M. (RMB1157/sqm)
At 2009 sold at RMB 50m. (RMB4816/sqm).
(2) DongGuang HouJie 118k sqm land and building
At 2000 bought land for RMB16m. (RMB135/sqm). the usage is up to Dec. 31, 2049.
Normal management fee is RMB1.15m/year.
Building and hardware( in US$ and square feet )
Construction Machine Furniture factory amenity dormitory office
Phase I: $8.0m $19.9m $7.4m 466k 91k 116k
Phase II: $7.3m $4.7m $2.1m 227k(2) 216k(2)
Phase III:$6.9m $1.6m 377k 120k 133k
-------------------------------------------------------------------------------------------------------
Total $22.2 $24.6m $11.1m 1070k 91k 452k 133k
Total building: 160k sqm
(3) DongGuang ChangAn 22.4k sqm land and 38.5k sqm building.
At 2003 bought at HK$25m(HK$650/sqm), totally $4.2m recorded.
Management fee is HK$270k/year.
At Dec.31, 2009, total recorded at cost:
Land and Building: $34.7m (Total building = 160k+38.5k = 198.5k sqm. Cost: $174/sqm)
Machine: $40.6m Furniture: $24.4m Others: $7m.
Total net book value recorded : $62m.
Given China't real estate appreciation, currently land and building might be liquidated at least 2 times of the cost.
15.Concerns.
There is a good article in seekingalpha:
(1) The 3 executive officer vacancy still hasn't been refilled. Sales down 35% after they left. Don't know whether they are related.
(2) Dividend had been suspended for Q1 and Q3 2010.
(3) Royce & Associates, LLC keep decreasing position in DSWL.
July, 22, 2010
Q4 2010 data
Bought more at $3.56.
1. Sales down 39% compare to last year.
2. Lost around $1m for this quarter.
3. FCF for whole 2010 year is 12.9m ( including $5.5m cash from sale of Shenzhen building).
4. Dividend 5c.
Q4 2010 data
Bought more at $3.56.
1. Sales down 39% compare to last year.
2. Lost around $1m for this quarter.
3. FCF for whole 2010 year is 12.9m ( including $5.5m cash from sale of Shenzhen building).
4. Dividend 5c.
Dec. 20, 2010
Q1 and Q2 2011 data
Recent price 3.45
1. 2010 all executive compensation $1.2m. Including compensation for Shu Kwan Lee who retired at May 01, 2009.
2. Sales in Q2 is up 15% to $24m, however, it is still much lower than 2008 ($32m) and 2007 ($38m) level.
3. Lost 0.24 per share for Q1 and Q2.
4. Cash decreased $8m compared to the 2010 year-end. However, despite working capital changes, it is just a little decrease. Actually, Q2 is positive.
Feb. 04, 2011
Bought some at $3.05.
Mar. 10, 2011
Q3 2011 data
Recent price $3.24
1. Q3 income excluding the $3.6m write down of assets, should be just made even.
2. Operating cash flow in Q3 is around $1m excluding working capital changes. First 3Q FCF excluding working capital changes made even.
3. Cut headcount from 4100 to 2900.
July 09, 2019
Price $2.72 Shares 16m. Cap: $43m.
2019 data(2019.03)
(1) The company has recovered for the last two years. Now made around $1 to $2m in operating plus $3m to $4m in investment gains.
(2) Current cash is around $38m. Book value is around $84m. Currently paying a 0.14/year dividend.
(3) CEO Richard Lau kept buying stocks. Now he owns over 50% of total shares.
(4) The company is still weak in terms of operating. Income relies heavily on investment income which is a little high for the last two years.
