Longcheer Holdings

[Nick]

Longcheer is the largest handset designer in the PRC. Its customers compromises of India's Micromax and Lenovo and Gionee in China.

Its share price has taken a beating today - 14% decline - to 55 SG cents !

Longcheer has significant cash pile with no debts. It repurchased its own shares heavily in 2009 and its treasury shares makes up 10% of its stock float.

It has paid handsome dividends in the past -

FY 05 - 1.23 SG cents
FY 06 - 5.72 SG cents (includes 3.12 cents special dividend)
FY 07 - 3.20 SG cents
FY 08 - 3.60 SG cents
FY 09 - 3.00 SG cents
FY 10 - 4.00 SG cents

Dividends are paid semi-annually.

Its recent 1Q 11 report showed an increase in both revenue and net margin. Its 1Q EPS stood at 2.17 SG cents.

Is there a reason for today's drop in price ? Any idea why its share price has taken a severe beating over the past 4 months (it was a 80+ cents stock in Oct 2010).

Will welcome views on this. I am certain I am missing out on some information haha !

[Musicwhiz]

Competition?

How are its margins holding up? Just a cursory question as I have not looked into its detailed financials yet.

[Nick]

Competition?

How are its margins holding up? Just a cursory question as I have not looked into its detailed financials yet.

This is not my watch-list stock so I didn't do any research.

I am just curious why this stock suddenly plunged 14% today.

I got the answer - DBSV issued a sell call today citing potential margin erosion in its India operation which may cause it to turn loss-making in FY 2011.

[Musicwhiz]

Ah! So anyhow whack in the dark also can get it right.

Basically margin erosion = competition heating up. Hahaha.

[Nick]

DBSV Report (dated 20 Jan 2011)

http://www.remisiers.org/cms_images/rese...l_DBSV.pdf

This report caused Longcheer share price to plunge by over 20% in 2 days !!!

Longcheer upcoming 2Q 2011 report which will be released in the coming week will either confirm or negate DBSV prediction. If they announced their usual profit, DBSV will be in shame. If they announced a loss, DBSV will be hailed as visionary. Quite a big risk DBSV has taken. We need more of such analyst in the future.

(Not Vested)

[D123]

From the DBS report: "As India accounts for 40% of group sales and almost 50% of shipments, we expect a significant adverse impact on Longcheer’s performance in the quarters ahead."

From Longcheer AR 2010 pg 62:
Segment external revenues:
Hong Kong - 2010: 1,410,823 2009: 1,861,304
East Asia - 2010: 118,326 2009: 313,511
China - 2010: 1,345,862 2009: 255,660
India - 2010: 485,560 2009: 66,062
Others - 2010: 922,089 2009: 348,468
Total - 2010: 4,282,660 2009: 2,845,005

India's share of revenues - 2010: 11.3% 2009: 2.3%

Is it possible for India's share of revenue to jump to 40% in such a short time? I think the Longcheer management should step out and make a clarification...

[Nick]

Longcheer continues to bleed today with its last traded price at $0.465.

The results due this week will be crucial. If the company post its usual profit, the price will easily increase by 50% back to pre-report levels. Investors who took the risk will have handsome capital gains + very high yielding stock. If the results are terrible, then DBSV will be lauded as a hero and the price may drop even more.

Interestingly, I would at least expect a profit warning if the company is going to report terrible earnings or even losses. Similarly, if the report facts are flawed, why isn't there any clarification from the company ?

[Musicwhiz]

Interestingly, I would at least expect a profit warning if the company is going to report terrible earnings or even losses. Similarly, if the report facts are flawed, why isn't there any clarification from the company ?

Company either doesn't bother, doesn't care or doesn't know.

Anyway most of the time I feel it is not the company's duty to clarify analyst reports as they are only disseminated to a select crowd, unlike press articles in newspapers which have a much broader readership base. I notice GLP being very quick to clarify articles in the Business Times, for example. It also depends on a company's willingness to invest in IR to address such concerns (if any).

For Longcheer, it's best to review their 5-year operating history and financials (at least) to get an idea of the risks and rewards of investing in it. Although I agree the share price could have been beaten down unfairly, an objective , rational and focused assessment would enable one to sleep better at night....

[mikh]

Longcheer's website lists analysis reports by the same aiteng of dbsvickers. Last one dated Sep 14th 2010. Looks like need for better PR/IR management

[Nick]

Results will be released on 27th Jan according to its IR website.

If the results is in line with 1Q 11 and the Management outlook doesn't change, I will consider waging a small punt on it purely for short term capital gain !