STI below 3000 points, it's been a while.

The STI going below 3000 points has not happened for a while now. It's been almost 4 years since it corrected at a similar time in 2011. Whew time does fly.

Still can't believe markets did not correct after the end of QE3 last year. Expected that the end of QE3 would herald the same market reaction as when QE2 ended. Well looks like history sometimes doesn't repeat itself. The only explanation would be that as QE3 ended, both Japan and European central banks started their own QE like programs. This could have maintained the global liquidity that was flowing into stock markets.

However this time round, it does seem like the imminent raising of interests rates by the USA FED is having an effect on markets. That together with economic data showing a slowdown in China, contraction in Japan and not much recovery in Europe, is probably causing a flight to safety, namely the USD and Gold.

So what's so great about STI going below 3000 points? 
For the value investor, as stocks fall, more and more value emerges. Especially when sharp drops happen in a short space of time and fundamentals of companies remain not too bad, if not unchanged. It also means previous stocks which may have risen to fair value and profits taken are now once again showing attractive valuations. On a larger picture basis, an investor who has taken profits when markets were high, now has a chance to deploy his cash back into the market. As it is almost impossible to time the bottom during a stock correction/crash, a simpler approach would be to just mechanically allocate capital into the market as it retreats.

At the rate things are going, STI seems like it will be doing a repeat of 2011. Currently it is off from peaks of 3500 by >10% already and might be down 20% pretty soon. It seems that most of the market action of blue chips selling off seems to be due to fund outflows by ETFs tracking the emerging markets. Looks like for now, the confidence in emerging markets has been lost and it might take a while before confidence is restored.

CDW Holdings - Brightening your Sharp screens

CDW Holdings (D38.SI) - Brightening your Sharp screens

For this month, I have decided to do a post on CDW Holding Limited (current price 0.192). [CDW is a Hong Kong-based investment holding company. The Company focuses on the production and supply of niche precision components for mobile communication equipment, gamebox entertainment equipment, consumer and information technology equipment, office equipment and electrical appliances. The Company operates in three segments: LCD backlight units, Office automation, and LCD parts and accessories. LCD backlight units segment is engaged in the manufacture of liquid crystal display (LCD) backlight units for LCD modules. Its Office automation segment is engaged in manufacture and trading of parts and precision accessories for office equipment and electrical appliances. Its LCD parts and accessories segment is involved in manufacture and trading of parts and precision accessories for LCD modules.

This Japanese controlled company (>50% owned by MIKUNI CO., LIMITED), operating out of Hongkong but listed on SGX has been around for quite a while. It has also been rewarding OPMI with steady dividends for quite a while. Recent half-yearly results shows that they will be doing their USD0.5c interim div payout. Earnings have also been good so far at USD1.22c for this quarter and USD1.55c for first half. It seems the investment they made previously for a new factory production line for backlight units has been profitable, though revenue has declined a bit compared to same quarter last year. Once again let's have a quick look at it's overall current valuation, in simple BlueFund fashion.

Market cap : 93 million
NAV : $0.205
Price : $0.192 (7% discount to NAV)
Net cash :  85.57 million (72.04% of Market Cap)
Dividend yield : 8.33% (based on USD 1.2cents)

Being a company that operates based in hongkong and factories in China, one could almost classify this as an S-chip. However, this company was founded since 1991 and still largely owned by Japanese. Other than a one time fiasco few years back with a wayward Chinese employee trying to embezzle the company's cash stored at a china bank, which was discovered and monies recovered, management has been running the company well and has been quite generous with dividends. Personally I have communicated with the company and have received email replies from top management, so this gives me some confidence that they are an ok bunch and that the cash that they have is really sitting there in the banks.

Business wise, it is dependent on a big customer in Japan, which they have kept secret due to privacy concerns, but I am guessing it is SHARP which supplies displays to Sony and Nintendo (pretty obvious from the picture of a PS Vita and Gameboy on the products page). Sony does use screens for their products from different manufacturers and SHARP is one of them. The recent report by RHB about a new line of displays released in June vs those of rival JDI(Japan Display) also points to the  major customer being SHARP.

In the end, the fortunes of CDW are very tied to it's main customer for now. Management has indicated they will try to diversify their income stream to other customers. Lets hope they get a contract from JDI(Japan Display), which must be profiting from supply screens to the millions of Iphones and Galaxy S's out there.

Will be accumulating on any dips.

[author holds shares in this company]

UPDATE : Sharp is trying to sell its LCD business off likely to Japan Display. This either means loss of supply contract and business to Sharp or an influx of orders from JDI for new iPhones.

UPDATE April 2016 : SHARP has just been sold to Hon Hai Foxconn the famed Iphone manufacturer for Apple. With a new factory set up in Blangadesh and mention of a Taiwanese partnership (which could be Foxconn) that has developed new light guides, it looks like business at CDW might be ramping up soon.

PNE Industries Ltd - Cashing it in

PNE Industries Ltd (P07.SI) - Cashing it in

Company for this month is PNE Industries Ltd (current price $0.15). A bit of background : [ PNE Industries Ltd has three divisions namely Electronics Manufacturing Services (EMS), Emergency Lighting and Lithographic Supplies divisions. It is listed on the Main Board of Singapore Exchange since 2000.

PNE EMS not only designs innovative EMS products for its customers but also emphasizes on post-sales value-added services. This ensures customers receive the highest quality of services that are able to meet the needs of their organisations. In both Malaysia and China plants, products are manufactured according to international standard quality and regulatory requirements.

A leading brand name in Southeast Asia, PNE has penetrated the construction and building industry offering emergency lighting products. In Singapore and Malaysia, PNE is involved in the manufacturing and sales of lighting products. Its emergency lightings are certified and approved for used by the various independent certification test laboratories.]

For the past couple of years, PNE share price has not been doing much. It's share price spiked last year to 22cents after news of a possible buyer who offered 30cents for the owner's shares. We can speculate on why someone would propose an offer at such a premium but unless there are some undeclared hidden assets worth that much, the offer just didn't make much business sense. Unfortunately that got cancelled and the price dropped back to lows of 13-15cents. PNE Indus also pared down its stake in loss making subsidiary PNE PCB Bhd a listed company on the KLSE. PNE did not manage to completely sell off everything, so it now still has a much reduced stake. Recent quarters has seen PNE PCB's business turnaround into profit making, which will be good for PNE Indus.

Currently PNE Indus is going through the typical share consolidation which many small caps have done to be in line with new listing requirements of the SGX. Let's just use the old share price and numbers from the latest reports to see what value we can find...

Market cap : 50 million
NAV : $0.22
Price : $0.15 (32% discount to NAV)
Net cash :  30.1 million (59.79% of MCap)
Dividend yield : 3.33% (based on last final 0.05. Historically payout has been less but PNE Indus has been increasing its payout within its means past few years)

From what's been happening last year, it looks like the Tan family, who have operated the company for many decades and have a large interest in this company of around 80%, seem to be thinking of consolidating the assets in this company and wrapping things up. It is likely they are thinking of selling the company wholesale or going for privatisation.

In any case, the fundamentals look strong, business is still profitable and there is still a possibility of liquidation of residual stake in PNE PCB Bhd, possibility of another offer from 3rd party and of course, possibility of a general offer from the Tan family some time in the near future.

This stock is also trading very thinly at the moment which means interest is low and stock is unnoticed which bodes well for any catalyst which will bring it to the upside very quickly. Will be increasing my stake in the future on any significant dips.

[author holds shares in this company]