Technology: Conflicting news - Which is which now?

The bad news:

1. The Edge: Tech stocks decline on gloomy outlook

2. Financial Times: Samsung warns of sagging profits

The good news:

Bloomberg:

1. Sony, Panasonic Withstand Strong Yen With Forecasts

2. Alcatel-Lucent Confirms 2010 Outlook After Second-Quarter Loss

3. Sony Shares Gain on Increased Profit Forecast; Goldman Boosts Price Target

Notion (RM2.76): Private placement not likely to go through

Just read a report on Notion Vtec by ECM Libra. Private placement likely will not go through possibly due to pricing issues. Thus, the company will opt for bank borrowings to fund its expansion for its new third plant in Klang. Nonetheless, the 1-for-5 free warrants will go through as planned. ECM Libra upgraded their EPS by 3-5% to take into account the aborted private placement, higher interest costs and dilution from in-the-money warrants.

This will be good for the share price as EPS will not be diluted. Shareholders will be able have a greater participation into the potential upside of the share price with the free warrants. Ex-date for the warrants will be 30 July 2010 while entitlement date is on 3 Aug 2010. Exercise price for warrants = RM2.55.

For more info, click here.

Tech stocks: Fab Spending Heading for 117 Percent Growth in 2010

News Report:

Spending on global fab projects to hit US$36b in 2010, says SEMI

A case of demand outstripping supply owing to massive cuts in production capacity during the economic crisis. Good for tech stocks.

For related articles, click here.

Dufu (RM0.595) to benefit from strong earnings of Western Digital & Seagate

Western Digital and Seagate recently announced their results which showed huge improvement in their sales and earnings. This should bode well for Dufu Technology as Western Digital and Seagate are its two main customers. Dufu quarterly results for 1Q 2010 should be out in end May 2010 and expected to be favorable.

News on Western Digital as shown below:

SAN FRANCISCO: Western Digital Corp reported better-than-expected results and set a forecast for the current quarter that topped Wall Street's targets, as it forecast robust demand for its hard drives, according to Reuters. The company's shares rose less than one percent in after-hours trading.

Western Digital's results come on the heels of a strong report from chief rival Seagate. Both companies are benefiting from renewed demand for personal computers, as businesses finally begin to loosen their purse strings to upgrade aging technology hardware.

Western Digital forecast earnings for the current quarter of $1.40 to $1.50 a share on revenue of $2.475 billion to $2.575 billion. Analysts are expecting a profit of $1.36 a share on revenue of $2.45 billion for the June quarter.The company also expects fiscal 2010 capital expenditures to be at the high end of its forecast range, indicating it will bring additional manufacturing capacity online.

"The strength we've seen in the last 12 months in consumer, which has been considerable and above everyone's expectations, (is) now being augmented by the beginnings of a corporate purchasing cycle," Chief Executive John Coyne said on a conference call with analysts.

Western Digital's shares received only a small boost in extended trading. Wedbush Morgan analyst Kaushik Roy said the strong results and forecast were already baked into the company's stock price. "It was expected that they would have a good quarter and if you look at the chart, the stock is tired, it wants a break," he said.

Western Digital's shares are up roughly 90 percent from a year ago. The company's shipments in the quarter rose 62 percent to 51.1 million units, surpassing Seagate's total. Western Digital, which is more reliant on consumer sales, said it took share in the overall hard drive market.

There is ample evidence of an upswing in spending on technology hardware. Research group IDC said global PC shipments surged 24 percent in the January-March quarter. Western Digital said net income rose to $400 million, or $1.71 a share, in the fiscal third quarter ended April 2, from $50 million, or 22 cents a share, in the year-ago period.

The average analyst estimate called for a profit of $1.55 a share, according to Thomson Reuters I/B/E/S. Revenue rose 66 percent to $2.64 billion, above Wall Street's target of $2.54 billion. Gross margin was 25.2 percent, better than the consensus estimate of 24.4 percent.

The shares of Lake Forest, Calif.-based Western Digital closed at $40.68 on the New York Stock Exchange and rose to $41 in extended trading. - Reuters

Source: The Edge

For previous post on Dufu, click here.

Dufu Technology Corp (RM0.58) - A super undervalued gem riding on recovery and expansion

Dufu Technology, a manufacturer of HDD components, is a gem waiting to be unleashed as this counter remains very underpriced and largely gone unnoticed by the market, despite its massive surge in earnings by riding on the recovery in global demand for HDD and more importantly its expansion into China.

It is operating in a 120K sq ft factory in Bayan Lepas Free Trade Zone, Penang, producing mainly HDD components such as disk clamps, disk spacers, hexagon nuts etc which contributed about 80% of its revenue. The company also manufactures components for industrial safety and sensor, telecommunication, computer peripheral and computer electronics. Its main customers are Western Digital, Seagate and Hitachi Global Storage Technology, which are some of the largest HDD manufacturers in the world. It is understood that Dufu commands a market share of 20-30% of the disk spacers and disk clamps globally while its closest competitors are Disk Precision Industries, Global Primax of China and Notion Vtec.

Ok. The main story is that it has acquired a Chinese company named Futron Technology Limited in 1Q2009 which is complementary to the company's business as Futron also manufactures and trades components of HDD and computer peripherals. About 70% of its revenue comes from South East Asia while the remaining is from China. Its factory is located near Guangzhou and has a size of 90K sq ft which allows Dufu further expansion. The beauty of the acquisition was that Dufu acquired it at a very cheap price of RM20mil which is about PE '09 of 4x. As at 9 months ending Sept 2008, its revenue was about RM20mil with net profit of RM2.5mil. This was about 1/3 of Dufu's earnings. In addition, the acquisition also came with a profit guarantee of RM5 mil for 2009 where any shortfall from the profit guarantee will be compensated.

Currently, utilization rate of its factories is about 90% in Penang and 100% in China. It has planned RM20mil for expansion in 2010 of which about half of it will be used by 1Q2010. With the acquisition of Futron coupled with the recovering market, Dufu's earnings and margins have been expanding significantly and even breached its historical peak. Its latest net profit and net margin reached RM5 mil and 14.2% respectively in 4Q09, surpassing its height of RM3.4mil and 13.5% respectively back in 3Q07.

Assuming that its latest performance will be maintained for the rest of 2010, though I believe that HDD market demand will continue to trend upwards, its net profit will come up to RM20mil in 2010, translating into EPS of 16.7 sen. Consequently, PER for 2009 and 2010 will only be at 6.0x and 3.5x respectively!!!!!!!!! Therefore, even if PER of 6x is attached, the stock price could reach RM1.00 already from its current level of RM0.58, a hefty 72.4% rise!! Dreaming? Hopefully this dream will come true :)

Stock Price: RM0.58

Shares Outstanding: 120 mil

EPS for 2009 and 2010: 9.6 sen and 16.7 sen

PER for 2009 and 2010: 6.0x and 3.5x

Disclaimer: The above article does not represent an investment advisory service as no subscription or management fees are charged. The contents of the article are provided as general information only and should not be taken as investment advice or as a recommendation to buy or sell any security or financial instrument. Any investment decisions carried out based on information, analysis, or commentary provided above is solely your responsibility. You should consult your investment adviser before making any investment decisions.

Notion Vtec (RM3.32): Still cheap, worth accumulating now

Much has been written about Notion Vtec by Salvatore Dali in his posts, so I won't repeat here again.

Notes:

• Resilient and high net margins in the range of 22%-25% since IPO in 2005
• Net profit to rise to about RM60mil in 2010 from RM36mil in 2009
• PER'09 and '10 at 12.9x and 7.8x respectively
• Nikon to hold 10% of Notion Vtec, further establishing Notion's business with Nikon and elevate Notion's branding among clients.
• Earnings growth expected to be strong from anticipated gains in market share.
• Backed by its earnings growth, high net margins, high ROE, higher reputation and Nikon as a shareholder, it has no business trading at PER'10 of 7.8x. Share price could potentially reach PER of 12-14x, breaching RM5.00 mark.
• Share base of 140.7 mil only, rather easy to nudge up the share price.
• Market Cap: RM467.2 mil
• Expected Div Yield: 3-4%, decent.

Disclaimer: The above article does not represent an investment advisory service as no subscription or management fees are charged. The contents of the article are provided as general information only and should not be taken as investment advice or as a recommendation to buy or sell any security or financial instrument. Any investment decisions carried out based on information, analysis, or commentary provided above is solely your responsibility. You should consult your investment adviser before making any investment decisions.