Dutech Holdings

[CityFarmer]

Things that don't make business sense :

1) Wouldn't it be easier and cheaper just to hire the german engineers from DM if you are aiming at the tech? Surely they would be eager to jump a sinking ship?

Let me try to make sense of it

We usually take a few "star" engineers for technology, but in actual fact, the key for technology transfer is the "team". I reckon the best way to buy a intact team, is to buy the company.

Moreover, customer base, production faculties, certified status, production processes etc, etc, are valuable tangible and intangible assets.

2) And no, I do not think Germans would sell out their company to chinese and trust them to keep it running. In business world, once you sell out you lose control of business, buyer will not keep it running if its not profitable for them.

I assume you refer to FORMAT case. The previous owner of the German company, is a SSH of Dutech, after the acquisition.

3) If a German company can't make it in this business sector, what makes a chinese company think they can do better? Germans well known for premium quality products and services. If these are not selling is the industry shrinking or who is outcompeting them? So if the acquisition is not a "chop up and sell for profit thing", even if they get some German tech below par value, what's the value in that technology if the germans are making losses from it.

Good question. The answer is the different cost structure. FORMAT was losing out due to its high cost structure. Will Dutech make a difference? Of course. FORMAT is the formal key competitor of the company, and Dutech "killed" it.

4) DM has factory and business in Hangzhou China so take PPE reporting with grain of salt.

I will. Anyway, PPE value isn't a key factor, but earning is, as far as I am concern.

5) Cannot see the synergy from DM technology. Possibly some benefit from improving manufacturing processes but otherwise making ATM safes(Dutech) is very different from making Ticket machines(DM)??

Yes, very true. Ticket Machines and ATMs are different, but both need to keep money within the machine. It is a new venture, thus buying an existing company with the technology, instead of develop it from scratch, make sense to me.

(not vested)

[BlueKelah]

Just finished a quick look at quarterly report,

Of note :
Despite increasing Cash eq RMB168m->177m, debt increase from RMB12.4->46.6m YOY. Good use of debt or they just don't have the cash to payout dividends and fund acquisition.

Revenue : sales excluding DTMT fell 8.1% and including fell 2.7% over corresponding 9 months period compared to last year.
One time fair value gain of DTMT acquisition was booked into other income despite not selling any of the company yet thus giving the big boost to NPAT.

Also not factored in is the 30% more of the DTMT buyout which completed 31 Oct and 10% more to be completed in 2019.

Semiconductor segment gross margin 32.5%? Gosh that sounds pretty high. Wonder what the net margins is.

Given their gun safe business seems to be soft in the USA, will this impact more on revenue/earnings in the future? Probably get a clearer financial picture next year.

At the moment from my quick review doesn't seem much of a growth stock. Value wise also not that attractive.

[CityFarmer]

Just finished a quick look at quarterly report,

Of note :
Despite increasing Cash eq RMB168m->177m, debt increase from RMB12.4->46.6m YOY. Good use of debt or they just don't have the cash to payout dividends and fund acquisition.

The debts are all secured ST debts, in Euro and US$, for legitimate purposes e.g. mortgage debt, DTMT inherited debt etc. The info has been fully disclosed. The Euro interest rate is low, in the range of 2-3%. I reckon the rate of US$ debt is also low.

Revenue : sales excluding DTMT fell 8.1% and including fell 2.7% over corresponding 9 months period compared to last year.
One time fair value gain of DTMT acquisition was booked into other income despite not selling any of the company yet thus giving the big boost to NPAT.

Well, at least we know the one-time gain is from acquisition of DTMT. The gain should be recorded somewhere, to get accounting balance, right?

Also not factored in is the 30% more of the DTMT buyout which completed 31 Oct and 10% more to be completed in 2019.

I will concern, if it is factored in. The rest of 30%+10% deal occurred in Oct 2014 and the 9 months report ended Sept 2014. Too quick for the doubt?

Semiconductor segment gross margin 32.5%? Gosh that sounds pretty high. Wonder what the net margins is.

It is a specialized biz for electronic industrial module, with PBT margin of around 20%.

Given their gun safe business seems to be soft in the USA, will this impact more on revenue/earnings in the future? Probably get a clearer financial picture next year.

At the moment from my quick review doesn't seem much of a growth stock. Value wise also not that attractive.

This is a valid point. The company biz has strong correlation with banking sector. Moreover the company seems still struggle to get FORMAT in black. In FY2013, the FORMAT still in red, more than 2 years after the acquisition.

[BlueKelah]

CF - good analysis and discussion

We'll see...

[Greenrookie]

Just finished a quick look at quarterly report,

Of note :
Despite increasing Cash eq RMB168m->177m, debt increase from RMB12.4->46.6m YOY. Good use of debt or they just don't have the cash to payout dividends and fund acquisition.

The debts are all secured ST debts, in Euro and US$, for legitimate purposes e.g. mortgage debt, DTMT inherited debt etc. The info has been fully disclosed. The Euro interest rate is low, in the range of 2-3%. I reckon the rate of US$ debt is also low.

Revenue : sales excluding DTMT fell 8.1% and including fell 2.7% over corresponding 9 months period compared to last year.
One time fair value gain of DTMT acquisition was booked into other income despite not selling any of the company yet thus giving the big boost to NPAT.

Well, at least we know the one-time gain is from acquisition of DTMT. The gain should be recorded somewhere, to get accounting balance, right?

Also not factored in is the 30% more of the DTMT buyout which completed 31 Oct and 10% more to be completed in 2019.

I will concern, if it is factored in. The rest of 30%+10% deal occurred in Oct 2014 and the 9 months report ended Sept 2014. Too quick for the doubt?

Semiconductor segment gross margin 32.5%? Gosh that sounds pretty high. Wonder what the net margins is.

It is a specialized biz for electronic industrial module, with PBT margin of around 20%.

Given their gun safe business seems to be soft in the USA, will this impact more on revenue/earnings in the future? Probably get a clearer financial picture next year.

At the moment from my quick review doesn't seem much of a growth stock. Value wise also not that attractive.

This is a valid point. The company biz has strong correlation with banking sector. Moreover the company seems still struggle to get FORMAT in black. In FY2013, the FORMAT still in red, more than 2 years after the acquisition.

CF,

I have problem pinpointing Format loss making in the 2012 and 2013. When I read the quarter reports ( in the 2012, 2013, they stop talking about it) I read about format contributing the gross profits.

Can u enlightened me.

Studying Dutech too, with its growth PLAN clear with new products and markets through acquisitions. But it somehow reminded me of techcomp Europe acquisitions with the same "theory" of improving cost structure but never yield the benefits of bottom line growth, my thoughts then maybe it was not so easy to outsource and "fire" or restructure in Europe without incurring significant costs. Not sure if Germany is different.

Hope to hear buddies view on this ...

[CityFarmer]

CF,

I have problem pinpointing Format loss making in the 2012 and 2013. When I read the quarter reports ( in the 2012, 2013, they stop talking about it) I read about format contributing the gross profits.

Can u enlightened me.

In AR2012, a statement from page 4:

"At the same time, the Group will place strong emphasis
on addressing the issue of increasing production costs
and to turnaround Format which continues to face losses
operating in the challenging European environment."

In AR2013 e.g. in page 51

"During the financial year 2012 and 2013, management performed impairment review for investments in Format Group as
the subsidiaries are in loss-making positions"

Hope it helps.

Studying Dutech too, with its growth PLAN clear with new products and markets through acquisitions. But it somehow reminded me of techcomp Europe acquisitions with the same "theory" of improving cost structure but never yield the benefits of bottom line growth, my thoughts then maybe it was not so easy to outsource and "fire" or restructure in Europe without incurring significant costs. Not sure if Germany is different.

Hope to hear buddies view on this ...

To "restructure" a European company, especially those involving slimming exercise on employees' benefit, are very sensitive issues, and can easily attract "union" intervention.

Dutech might has similar issue with the DTMT too, I guess...

[sgpunter]

CityFarmer, you seem to monitoring this closely but are not vested yet. Just curious but what is the reason you are staying on the sidelines for now?

[touzi]

Semiconductor segment gross margin 32.5%? Gosh that sounds pretty high. Wonder what the net margins is.

It is a specialized biz for electronic industrial module, with PBT margin of around 20%.

Where can I find the information for their semi-conductor business? I couldn't find it in the AR or the website. Semi-conductor and Safes are like chalk and cheese.

[CityFarmer]

CityFarmer, you seem to monitoring this closely but are not vested yet. Just curious but what is the reason you are staying on the sidelines for now?

Because I am still yet to get good answers for some of my questions.

What are those questions? I can only say most are related to the M&As...

(not vested)

[CityFarmer]

Semiconductor segment gross margin 32.5%? Gosh that sounds pretty high. Wonder what the net margins is.

It is a specialized biz for electronic industrial module, with PBT margin of around 20%.

Where can I find the information for their semi-conductor business? I couldn't find it in the AR or the website. Semi-conductor and Safes are like chalk and cheese.

FYI, the Semicon revenue was less than 6% of overall revenue, and slightly more than 11% in overall PBT. The HS segment is the focused segment, vs. the Semicon, as least in the last few years, and I reckon the strategy will remain in near future

One good source of info, is the IPO prospectus, which highlighted the product, and key customers. So far no major "changes" disclosed for the Semicon segment, and I guess the business model should be more and less remained the same.

Hope it helps.