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Today's announcement on the establishment of a new, wholly-owned PRC subsidiary - Jiangsu Tri Star Technology Company Limited - indicates the growth of Dutech's ATM safe manufacturing business is continuing.....
http://info.sgx.com/webcoranncatth.nsf/V...C0015955E/$file/Ann-EstablishSubsidiaryinPRC.pdf?openelement
Is making ATM safes (one of Dutech's products) and selling them to global ATM manufacturers a good and profitable business for the long term? Based on Dutech's track record todate, it certainly looks like it. At the very least, global ATM manufacturers do not produce their own ATM safes, and these companies should be willing and able to pay for the ATM safes ordered and supplied by Dutech provided their technical specifications and other requirements are met!
Forumers can visit Dutech's website and review the company's FY09AR and 1H-FY10 results announcement by using below links.....
http://www.tristarinc.com/index.php?en=en [Dutech's PRC website]
http://info.sgx.com/listprosp.nsf/07aed3...0002dbfff/$FILE/SAR0911008_Dutech_AR(LowRes).pdf [FY09 AR]
http://info.sgx.com/webcoranncatth.nsf/V...E0031E461/$file/Dutech_2ndQ_30Jun10.pdf?openelement [1H-FY10 results announcement]
I hope an active discussion on this promising company could follow.....
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Today's announcement on Dutech's plan to establish a new, major production facility in Su-Tong Science & Technology Park (near Dutech's existing production facility located at Nantong) at an estimated investment cost of Rmb180m (approx. $34.6m) appears to be a well-conceived undertaking.....
http://info.sgx.com/webcoranncatth.nsf/V...E0028E320/$file/ANN-AcqofLandinSTIP.pdf?openelement
It is interesting to note that apart from raising the existing production capacity for high security products (i.e. ATM safes and other safes), Dutech plans to make use of the new facility to assemble ATM/Kiosk products - i.e. the global OEMs of ATMs would contract Dutech to assemble complete ATMs, on top of buying the ATM safes from Dutech. Considering the huge market size for ATMs in PRC, and PRC's competitive cost structure as a manufacturing base, Dutech stands to over time become a contract manufacturer of complete ATMs for the PRC and export markets.
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01-10-2010, 02:32 PM
(This post was last modified: 02-10-2010, 04:08 AM by valuehunter.)
Hi dydx,
I've always enjoyed reading your posts. Thank you for highlighting this company! From the financial statements, it does seem that the company has a clean balance sheet with good cash flow. Given that ATM safes need to undergo stringent tests before being UL certified, Dutech does seem to be operating in an industry where the barriers of entry are reasonably high.
However,
(1) would the local investing community give the company its due valuations? There seems to be an aversion to China-linked companies, even if wayward ones are the exception rather than the norm.
(2) based on what i can find on the SGX website, the company declared interim dividends of $0.02 (2008) and $0.01 (2009) Did the company follow that up with a final dividend?
(3) since atm safes are built to be resilient, how often would banks need to replace them? Would the sales of safes make a good source of recurrent income in this case?
Would appreciate if you could share your thoughts here. Thanks.
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(01-10-2010, 02:32 PM)valuehunter Wrote: (1) would the local investing community give the company its due valuations? There seems to be an aversion to China-linked companies, even if wayward ones are the exception rather than the norm.
(2) based on what i can find on the SGX website, the company declared interim dividends of $0.02 (2008) and $0.01 (2009) Did the company follow that up with a final dividend?
(3) since atm safes are built to be resilient, how often would banks need to replace them? Would the sales of safes make a good source of recurrent income in this case?
My response:
(1) It is difficult to predict the preference, mood, or timing, of Mr Market on a particular stock, including Dutech, which has a business based in PRC but sells to the world market. But I tend to believe "Every horse will have its days to run and win in a race!". I suppose as investors, we just have to choose the companies well.
(2) Based on Dutech's past track record since its listing in Aug07, the company has always paid out a dividend very year and in the last 3 FY's (FY07 through FY09), except that the dividends were paid out as interim dividends in the following year. I understand this is due to some administrative reasons.
(3) While bank ATMs are designed to last, these machines do break down and have a maximum operating life, and I suppose banks need to change and upgrade them over time. We have to try to also appreciate there are now many different types/models of banking machines that store/dispense cash, and each of these has a different safe inside. Just look around Singapore, the number of ATMs deployed - nowadays also in petrol stations and convenient stores - continues to increase year after year. We can also imagine a similar evolution in a major city like Shanghai, or the many growing and fast-modernising cities in PRC and India.
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I notice from the annual report that Robert Stone is a substantial shareholder. That to me is a good sign because the man is a successful, experienced full time investor.
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For those who have missed it, Dutech's Q3 (ended 30Sep10) results announcement (first released on 12Nov10).....
http://info.sgx.com/webcoranncatth.nsf/V...90032689D/$file/Dutech_3rdQ_30Sep10.pdf?openelement
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Dutech normally has very low daily trading volume but when I last checked today, 2,300 plus lots were done today! Something brewing?
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(27-12-2010, 03:59 PM)julianbream Wrote: Dutech normally has very low daily trading volume but when I last checked today, 2,300 plus lots were done today! Something brewing?
From the transactions record, a total of 2,298 lots were crossed all at $0.215, in 4 separate off-market transactions, put through after 2.30 p.m. It appears there was 1 big seller, and 4 separate buyers. Interesting!
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(27-12-2010, 04:14 PM)dydx Wrote: (27-12-2010, 03:59 PM)julianbream Wrote: Dutech normally has very low daily trading volume but when I last checked today, 2,300 plus lots were done today! Something brewing?
From the transactions record, a total of 2,298 lots were crossed all at $0.215, in 4 separate off-market transactions, put through after 2.30 p.m. It appears there was 1 big seller, and 4 separate buyers. Interesting!
Let's see if any mandatory disclosures come up today/ tomorrow re these transactions.
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Dutech has contracted to buy German safe company - FORMAT - to be valued at approx. $4.7m (based on the agreed purchase consideration of 28.536m new Dutech shares amounting to 8% of Dutech's enlarged capital base; and the last done share price of $0.165).....
http://info.sgx.com/webcoranncatth.nsf/V...B00374581/$file/Ann_ProposedAcquisitionofFormat.pdf?openelement [10Jun11 announcement]
http://www.format-tresorbau.de/en/products.html [FORMAT's corporate website]
While FORMAT is now loss-making, Dutech is buying the business essentially for its technologies and customer base, and has articulated very well the rationale for the Proposed Acquisition as follows:
"(a) Over the years, Format has developed certain advanced technologies,
products and production expertise which will take the Group some years to
develop. Owing to its high costs structure and production capacity
constraints, Format was not able to fully utilize these advantages.
However, if the certificates, technologies and new products are coupled
with the Group’s low cost competitive edge, the acquisition will
significantly consolidate the Group’s market leadership by capturing more
market share and improve its profitability.
(b) The Board believes that the Proposed Acquisition will significantly increase
the Group’s sales. The enlarged economies of scale will greatly enhance
the Group’s competitiveness and improve its capability to withstand
adverse situations and risks.
© The Proposed Acquisition will enable the Group to take a firm step into
Europe. Further, by acquiring Format, the Group may also eliminate an
avenue open to the Group’s competitors to enter into the European market
and high end safe and security market.
(d) The Board believes that it is able to reduce the procurement costs and
improve the cash flow of Format.
(e) The Proposed Acquisition will enable the Group to tap on Format’s
customer base. This will create synergy in term of sales and marketing.
(f) The Proposed Acquisition will enable the Group to have a production base
in Europe and will thereby enable the Group to mitigate the impact of
trade disputes and frictions which may arise between the PRC and other
developed countries due to trade imbalances.
(g) Droege’s shareholding in the Company will enable Droege to become a
strategic partner with the Company. With Droege nominating two nonexecutive
members to the Board, the Company can draw on the experience of Droege for
the advantage of the Company."
Based on FORMAT's 31Dec10 NTA of EUR5.389m - equivalent to $9.217m - Dutech stands to book a gain from bargain purchase of approx. $4.5m on closing of this acquisition. As Dutech's current share price appears to be substantially lower than its intrinsic value, I suppose we can assume, on a value basis, the proposed deal between Dutech and (the seller) Droege International Group AG is a fair exchange between the 2 future partners.
I am quite impressed by the structure of the deal, bearing in mind Dutech and its management are based in PRC.
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