funkywizard (< 20)

NTE 3Q Results analyzed

November 02, 2009 – Comments (0) | RELATED TICKERS: NTE , HIMX

http://finance.yahoo.com/news/Nam-Tai-Electronics-Inc-Q3-prnews-2570834844.html?x=0&.v=1

Looking at Nam Tai Electronics 3rd quarter results, I would say for hopes of a quick recovery in business fundamentals, I'm disappointed, but in terms of slowly moving in the right direction, this company is executing well and is still trading at an excellent value.

Privatization of their subsidiary NTEEP is on schedule to be completed, and the results of that will be reflected in their 4Q report. The company believes this will improve their operating margins through efficiency and reduced costs.

Previous attempts to get costs in line seem to have worked, as the temporary loss incurred due to layoffs is behind them, with NTE earning 11 cents / share in the current quarter. Of course what caught my eye when I bought the stock originally was that cash on hand was substantially greater than the share price, with no appreciable liabilities. This has been reduced somewhat, presumably due to privatizing NTEEP, continuing to build their new manufacturing facility, and likely other factors. It would be worthwhile to look to see if accounts receivable and inventory have increased substantially, as these could either be good or bad signs, but either way would be affecting cash on hand as we've seen.

For the quarter, their cash position stands at $189 million, or $4.22 / share. The closing price today was $5.29 / share. Adding in other current assets (accounts receivable, inventory, prepaid expenses) and backing out liabilities (accounts payable, debt, tax payable), the total current asset value of the company is $197 million, or $4.40 / share. The reported value of their long term assets (primarily property, plant, and equipment), stands at $132 million, bringing their total book value up to $7.31 / share. Not bad for a well run company trading at $5.29.

Given that the company has largely been able to avoid losses through good management and cost reductions, I am overall very positive for the prospects of this company in the long term. However, as the company has mentioned, things are expected to remain difficult through the 3rd quarter of 2010. I would sell if their current asset position deteriorated significantly, if they were to post large losses for more than one quarter, or if demand in the industry as a whole picked up, but NTE's sales did not similarly improve. That said, with the liquidation value of the company still well above the current share price, along with their track record of good corporate governance and profitable operation, I feel completely comfortable holding this stock in the mean time.

Disclosure: I own shares of NTE

-Gabe