Longcheer Holdings

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A rather good article, in my opinion, to express the state of 3G growth and sales of low-cost smartphones. in China. It translates to more business for Longcheer who deals with selling of 3G smart phones.

China Unicom’s 3G subscriber growth has had a splendid run in the last few years. Monthly 3G subscriber additions have been growing and are likely to stay on course as China Unicom’s 3G penetration offers ample opportunity for growth. China Unicom’s 3G penetration as a percentage of its wireless subscribers is only about 38% currently. This shows that the operator has significant untapped potential as far as data demand is concerned. For the six months ending June 2013, China Unicom added 24 million 3G subscribers at a brisk pace of 4 million 3G subscribers a month. Comparing this with last year’s data, 3G subscriber additions have grown by an impressive 40%. [2]

However, despite the increase in 3G subscribers and the ensuing growth in the consumption of data, we see a worrying trend developing for China Unicom. The company’s 3G ARPU has consistently declined over the last few quarters, having fallen from RMB94 in Q1 2012 to RMB78 in Q1 2013. If this trend continues over the next few quarters, it could potentially limit the growth of China Unicom’s 3G business and consequently its mobile division as well. One of the prime reasons for the downfall in China Unicom’s 3G ARPU has been the rapid increase in sales of low-cost smartphones, which tend to be less data intensive. Moreover, the subscriber profile of a low-cost smartphone buyer is generally characterized by low data consumption. However, in the current scenario where telecom operators face stiff competition in 3G/4G data services, China Unicom’s focus on increasing its market share is a step in the right direction, even though the 3G ARPU would come under pressure with low quality subscribers.

Although this news is bad for the Unicom, it is good for Longcheer. Like our local telecoms, it also provides subsidies for smartphones. As more Chinese move to the cities to work, data consumption is becoming more of a necessity and thus, a need for a smartphone. Moving forward, I believe the trend remains in tact.

Furthermore, btig listed a few of Longcheer's customers. For example, lenovo, alcatel, xiaomi, ZTE, haier, china telecom, china mobile.

An article of xiaomi recently. A very strong case.

Cheap products with sleek designs and decent quality like Red Rice have made Xiaomi’s success. The company has grown quickly from its first smartphone sales in 2011, and now has a market share of about 5%, shipping slightly more smartphones than Apple in the second quarter, according to Computerworld.

Thus, one can conclude, to win in China, it is not about flashy iPhones or Samsung. Rather, affordability and reach to the masses.

The share price has came down again, after a run up. I picked up more recently as I believe the long term prospects. 4G licenses should be rolling out end of this year.

Comments are welcomed.
EPS for FY2012
Q1 -1.82, Q2 0.64, Q3 -4.29, Q4 -21.26
Full EPS -26.73

EPS for FY2013
Q1 0.5, Q2 5.52, Q3 4.96, Q4 5.85
Full EPS 16.83

Seems like a turnaround counter backed by a growing albeit competitive industry. Its profit margin ranges from 0.5%, 1.9%, 1.8%, 1.4% from Q1 to Q4. This is shows the cut-throat intensity of the 3G phone market.

Hopefully, when the financial commentary states that they are going to ratonalise its clientele and execute strict cost control, it will show on the net profit margin in the next quarter. Actually, I like its balance sheet. No long term bank loan. But concern is the hugest liability is the trade and bill payables standing at a massive 1,502,901 RMB'000. It will take all the cash balances, restricted bank balances, note receivables, and trade receivables to pay them off fully.

Quote:Trade and bill payables increased significantly by RMB 1,049.3 million or 231.3% mainly due to (i) increase in trade payables as a result of increase in procurement to cope with increase in business
volume; and (ii) increase in settlement using bill payables with maturity ranged from 3 months to 1 year.

As a result of this, the trade payables turnover days also increased during the year. Amount of bill payables increased from RMB 102.2 million as at 30 June 2012 to RMB 748.4 million as at 30 June 2013. For issuance of bill payables, the Group has to place deposits with banks as restricted bank balances and pledged deposits, hence balance of restricted bank balances and pledged deposits also increased from RMB 66.1 million as at 30 June 2012 to RMB 512.7 million as at 30 June 2013 which is discussed above.

As a result of increase in settlement using bill payables, net finance income (defined as interest income excluding income on other receivables over interest expenses) improved from RMB -6.3 million in FY12 to RMB 8.1 million in FY13.

^ With reference with the above, I don't quite understand. Why pledge RESTRICTED cash with the bank to get longer trade payables turnover? Why not use the cash to pay your suppliers directly? Either way, you can't use the cash. This is something that puzzles me.

Lai liao, every time when Longcheer about to announce earnings, price will go higher. This quarter I am looking forward to see how Xiao Mi can affect the overall performance of the company, Xiao Mi 2 was launched in October in China and was selling like hot cake, improved revenues and improved profit is part of my expectation, but I do worry about the low margin it generates.

Financial Statement: http://infopub.sgx.com/FileOpen/LHL_1Q20...eID=261499

Summary of FY14Q1 results
- The Group’s revenue for Q1 FY14 increased by 103% to RMB 1,253.2 million compared to Q1 FY13 of RMB 616.0 million.
- Gross profit for Q1 FY14 increased by 88% to RMB 98.3 million in Q1 FY14 compared to RMB 52.2 million for Q1 FY13.
- Gross profit margin for Q1 FY14 decreased from 8.48% in Q1 FY13 to 7.85% in Q1 FY14.
- For Q1 FY14, the Group recorded net cash used in operating activities of RMB 34.3 million. This is mainly due to increase in amount of inventories following the increase in delivery of complete handset.

(not vested)
Despite a lower reported revenue compared to 4Q, the bottomline has grown 28% which is rather impressive. This could be a hint that costs are more managed carefully. Finance costs are down, and bank borrowings are repaid. However, I share the same concern, I'd like to see the profit margins go up.

Another key to look out for, average selling price has risen to 239.51 RMB - their highest so far! Certainly, Longcheer is poised for a strong recovery.
Everything are already in good shapes, just waiting for dividend Big Grin
Earnings is out, EPS was 10.35c (65.6% higher YoY and 92.9% higher QoQ). NAV stands at 187.35c at 31 Dec 2013. This translate into 2.5 PE and 0.57 PB. Revenue is 89% higher than same period last year and margin stably low at 7.6%. Valuation seems so cheap!! Source

No doubt that the profits is still not able to match the peak 3/4 years ago, but the management is truly done a good job to turn the company around. I am expecting better quarters ahead in view of the Red MI effect. There have been also unofficial news that HTC and Asus are looking for ODM from China and Longcheer could be one of the potential candidate. Source
New high since May 2011 with high volume changed hands. There seems to be no news in the market, it could be directors' buying or perhaps the RedMi effects in Singapore.


Aside from hardware changes, Microsoft briefly announced new hardware partners for Windows Phone today. Foxconn, HTC, Huawei, ISR, Karbonn, Lenovo, LG, Longcheer, Nokia, Samsung, ZTE, and Xolo will all produce devices, but it's not clear exactly when any future handsets will come to market. Nick Parker, head of Microsoft's OEM work, says it will be up to phone makers to announce any future hardware, noting "we’re not going to announce any new hardware today."

So officially Longcheer is extending into Windows phones...
Longcheer currently trading at $0.26.

This is great!

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