Adampak

Adampak's FY10 (ended 31Dec10) AR is out and makes interesting reading....
http://adampak.listedcompany.com/misc/ar2010.pdf

As usual, an unpretentious, understated, and no-fanfare AR for a gem-grade company and business!

I am looking forward to the coming $0.02/share Final dividend for FY10, payable on 26May11.

Based on the total $0.03/share dividend payout for FY10 - $0.01/share Interim + $0.02/share Final - and the last done share price of $0.35, Adampak now gives a dividend yield of 8.57%p.a.

Assuming Adampak's share price stays the same at $0.35 till before the 'XD' date on 9May11, and falls a full $0.02 to $0.33 on that day or thereafter, and assuming total dividend payout for FY11 also stays the same at $0.03/share, the derived expected dividend yield would be 9.09%p.a.

If total dividend payout for FY11 is raised to say $0.035/share - a real possibility as Adampak sits on a large cash reserve, and the underlying business should continue to do well - the derived expected dividend yield would be higher at 10.6%p.a.

Will this be good news for Adampak...

Seagate buys Samsung hard disk unit

BANGALORE - US-based Seagate Technology's US$1.4 billion acquisition of Samsung Electronics Co's loss-making hard disk drive (HDD) business pits it head-to-head with Western Digital Corp in an industry that has been dogged by price wars.


The sector is battling persistent sales growth declines and faces a longer-term threat from wireless tablet devices such as Apple's iPad that use more power-efficient flash, or solid state drives (SSD).

However, Seagate chief financial officer Patrick O'Malley downplayed those concerns, saying increasing use of data would drive demand for storage.

'We look at tablets as a good thing as they will spur data-rich consumption, which is certainly good for storage and HDD storage,' he told Reuters by telephone.

The rising popularity of tablets is expected to drive demand for external drives and for so-called 'cloud' storage -- or online data storage -- helping companies like Seagate.

'SSD business is primarily in the enterprise space. Today, it is still a small percentage, but longer term it could be 5-10 per cent of the total enterprise market,' Mr O'Malley said.

'Mainframe enterprises -- the Yahoos and Googles of the world -- have a lot of storage needs.'

Both Seagate and Western Digital have been struggling to adapt to a future where fewer consumers have laptops and many view flash drive as the future of the disk drive industry.

The deal will give Seagate access to Samsung's NAND-type flash chips for its solid state drive products.

It comes just a month after Western Digital said it would buy the HDD unit of Hitachi Ltd -- a known price aggressor -- for US$4.3 billion.

The acquisition will increase Seagate's market share to 40 per cent, while Western Digital and Hitachi combined will have around half the market, Rodman and Renshaw's Ashok Kumar said.

'Hard disk drive is a commodity business. It's very hard to make money if rivals try to undercut each other,' said Wedbush Securities analyst Kaushik Roy, noting there should be fewer price wars with only three players left standing.

Toshiba Corp, which bought Fujitsu's HDD unit in 2009, will have around a 10 per cent market share.

Seagate had sales last year of US$11.4 billion, while Western Digital posted 2010 revenue of US$9.85 billion.

For Samsung, the world's largest technology firm by revenue, exiting the cut-rate HDD industry will allow it to focus on its bread-and-butter memory chip business.

After the deal, Samsung will supply NAND-type flash chips to Seagate, while it will source Seagate HDD for PCs, laptops and consumer electronics products. Seagate will also get access to Samsung's customer base across China and Southeast Asia.

'We are not huge consumers of NAND right now, which has somewhat restricted our access to that (SSD) market because we don't have key supply. Now we have access to technology and supply,' Mr O'Malley said.

Western Digital is also looking to reap the benefits of Hitachi's partnership with Intel Corp that allows it access to the chipmaker's NAND flash technology.

'Seagate and Western Digital were late in the SSD space, but they will gain a lot of market share as these guys have scale, relationships and the distribution channels,' Mr Roy said.

Analysts expect the entry of Seagate and Western Digital to create headwinds for smaller existing flash chip makers such as STEC Inc and Ocz Technology Group Inc.

Solid-state or flash market is currently dominated by Intel, Micron, Samsung and STEC.

Samsung will receive 45.2 million Seagate shares -- about 9.6 per cent of the company -- worth US$687.5 million and the rest will be paid in cash. With the deal, Samsung will become Seagate's second-largest shareholder.

Seagate expects the deal to 'meaningfully' add to its earnings per share and cash flow in the first year, and said it plans no material restructuring costs.

Morgan Stanley was financial adviser to Seagate, while Allen & Co was financial adviser to Samsung and Paul, Hastings, Janofsky & Walker was its legal adviser.

Separately, Seagate posted third-quarter profit below market expectations on lower hard-drive shipments, and forecast a fourth-quarter profit below estimates.

The sale should give South Korean giant Samsung more firepower for acquisitions and expansion into new business areas such as healthcare and green energy. -- REUTERS

I suppose one of the main reasons for WDC to acquire Hitachi's HDD operations, and for Seagate to acquire Samsung's HDD operations, is to gain a bigger market share and HDD volume, which will allow the possibility of streamlining the merged operations - in areas like production, sourcing of parts, management functions, etc. - in order to achieve greater efficiency and lower costs.

As Adampak is already a significant supplier of precision labels and die-cut parts to both Seagate and WDC, there ought to be good opportunities to increase volume and market share for such parts when the 2 start to streamline sourcing and suppliers of parts after the completion of their respective acquisitions.

I thought today's (26Apr11) transactions pattern is interesting enough to warrant a comment.

A total of 125 lots were done, of which 78 lots at $0.36, 6 lots at $0.35, and 41 lots at $0.345. All the 78 lots at $0.36 were done in the morning before 10:13 (a.m.), in 6 seperate normal-size transactions. What followed after that was the start of the interesting part - all the 6 lots at $0.35 were done before 11:02 (a.m.) but in 5 seperate transactions, comprising 1 for 2 lots, followed by 4 of only 1 lot each. What followed after that is the most interesting part - all the 41 lots at $0.345 were done and well spreaded out throughout the remaining trading hours, in 41 seperate transactions of only 1 lot each, with the 1st transaction at 11:24 (a.m.) and the last at 16:58 (p.m.).

What are the possible conclusions we can draw from such an interesting - and unusual - transactions pattern?

I guess someone is trying to deliberately bring down Adampak's share price a little in order to lure any loose-footed shareholders to turn sellers and sell into the waiting buyers' queue. Unfortunately, his trick has failed miserably!

(26-04-2011, 08:42 PM)dydx Wrote: What followed after that is the most interesting part - all the 41 lots at $0.345 were done and well spreaded out throughout the remaining trading hours, in 41 seperate transactions of only 1 lot each, with the 1st transaction at 11:24 (a.m.) and the last at 16:58 (p.m.).

Hi dy,

Coincidentally, I got all the 41 lots sold down @ $0.345 today. Seems to be programmed selling 1 lot each, every 6 or 7 minutes. The counterparty is Goldman Sachs Futures Pte Ltd fyi.

Lets see if this interesting pattern persists.

Hi Guys,
I've just gotten 5 lots @ $0.345 before lunch, also seemed to be selling 1 every 10 minutes or so (a friend had gotten her 5 @ $0.35 in between mine), so yes, pattern seems to be continuing.

(27-04-2011, 04:02 PM)xlh1476 Wrote: Hi Guys,
I've just gotten 5 lots @ $0.345 before lunch, also seemed to be selling 1 every 10 minutes or so (a friend had gotten her 5 @ $0.35 in between mine), so yes, pattern seems to be continuing.

who was your counterparty...

this week's the edge magazine has a front page coverage of hard disk companies. http://www.theedgesingapore.com/index.php

The odd trading pattern in Adampak continues... 1 lot being sold down at regular intervals. Really don't know who would be doing this and to what purpose... Would appreciate any inputs fellow forumers have and if they have ever experienced this kind of a trading pattern in any of their other counters...

Are fellow forumers concerned with the Q1 (ended 31Mar11)-FY11 results (first released on 13May11)?.....
http://info.sgx.com/webcoranncatth.nsf/V...F0024C2C9/$file/Adampak_Result_Q1_2011.pdf?openelement [Q1 results announcement]
http://info.sgx.com/webcoranncatth.nsf/V...F0024C2C9/$file/Adampak_PressRelease_1Q11_13May2011.pdf?openelement [Press release]

My own simple views -
(1) Q1 is normally a seasonally slower quarter for production of HDD and other electronic products, and we should be mindful that Adampak's on-going business volume is influenced by derived demand from its regular customers, including Seagate and Western Digital in the HDD segment. We should therefore view the 6.1% yoy decrease in Q1's revenue in this light.

(2) Other than the negative influence from lower business volume and the 6.1% fall in revenue, the bigger-than-expected 17.% fall in GP appears to be a cause of concern. Bearing in mind that Adampak reports its results in USD, I believe the continued weakness of the USD vs. SGD, MYR, CNY, THB and PHP in the last few months have indirectly inflated those local-currency cost items (e.g. labour, production overhead, etc.) when converted into USD, thus hurting Adampak's GP Margin in the accounting sense. In this regard, Adampak may be able to do better by perhaps going long in these local currencies by selling more of the group's USD sales proceeds forward in advance, or through using other derivatives to hedge the underlying forex risks. Of course, if and when the USD changes its direction, Adampak should again operate under 'sunshine and blue sky' weather condition.

I have also taken a look into Armstrong, which apart from supplying rubber/form parts to the automotive industry also supplies rubber parts to the HDD industry.....
http://info.sgx.com/webcoranncatth.nsf/V...F002154B2/$file/Q12011Results.pdf?openelement [Q1 results]
http://info.sgx.com/webcoranncatth.nsf/V...F002154B2/$file/PressRelease.pdf?openelement [Press release]

When I compare these 2 established businesses, it is quite clear to me that Adampak appears to have managed the impact of the weakening USD better than Armstrong, which has entered into some derivative contracts and suffered a $680k revaluation loss and a higher 39% decline (vs. Adampak's 31.9%) in PBT. Adampak also has a more conservative and stronger B/S than Armstrong.