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Why has this stock been left for dead?

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April 28, 2010 – Comments (11) | RELATED TICKERS: ACTS

  

Here's a stock that popped up on my radar screen, today a small Chinese tech company called Actions Semiconductor (ACTS).  I believe that ACTS makes chips for consumer products such as MP3 players, GPS, etc... 

The company's stock currently trades at $2.35/share.  According to the statistics that are available a Yahoo Finance it currently has $266,386,000 in "Cash," "Cash Equivalents," and "Short Term Investments" on the books.  If one divides that by the 86 million shares that ACTI supposedly has outstanding it comes out to $3.0975 per share in cash on the books along virtually no debt. 

These rough numbers that I came up with in a few seconds are fairly close to those that were mentioned in the company's 2009 year-end presentation to investors which listed the following (link): 

"Positive cash flow with over $254M net cash ($3.30/ADS)" [As of 9/30/09, down from $3.37 on 6/30/09] 

"Over $254 million in net cash, with positive cash flow since IPO" 

Companies that trade for less then their cash on the books pique my interest, but one has to ask themselves why they are so cheap?  Why has ACTS been left for dead? 

The company is losing money earnings-wise, but it appears to cash flow positive and trades at around 0.73 times book value. 

ACTI is scheduled to hold its annual meeting on May 13 and publish its first quarter earnings release and forecasts likely some time in May as well.  It is possible that information will come out in the meeting or the results / forecast that significantly move the price of this stock. 

I am throwing this one out there fairly early in the vetting process because I will fully admit that the semiconductor industry is far from my wheelhouse.  Is anyone in Fool Land familiar with Actions Semiconductor specifically or the industry in general? 

Deej

Home Fool

No position in ACTS

11 Comments – Post Your Own

#1) On April 28, 2010 at 4:37 PM, TMFDeej (99.24) wrote:

Please note that Actions Semi's ticker symbol is ACTS, not ACTI another popular tech company that I have written about in the past.

Deej 

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#2) On April 28, 2010 at 4:40 PM, TMFDeej (99.24) wrote:

P.S. there really should be an Edit or delete button on the blogs ;).

Deej 

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#3) On April 28, 2010 at 6:26 PM, TSIF (99.96) wrote:

Good questions Deej.  ACTS has an exceptionally high number of CAPS followers, including 100 Caps players with ratings of 96 or better.

I suspect it's hanging low because it appears to be dead money?

Income Dec, 2006 was $75 Million,  Dec. 2007 was $52 Million, Dec. 2008 was $26 million.  Negative 50% quarterly revenue growth. The company is profitable and does have a cash hoard, but it does not appear willing to deploy it. CASH is good, but it takes a talented management to leverage it.  Toss in the 2% insider/institutional interest. The fear of China and thier accounting,

On the plus side, they claim to have new products in the pipeline. Management sounds confident. Mobile video, audio, and GPS functionality may have some growth opportunities. R&D spending has doubled the last two years.

I'd suggest they are down on past performance, little retail interest, low volume, and an inability to articulate their vision.

With the moat in cash, I'd suggest they are near bottom and risk may be low. Any new products or earning surprise should reward "LONG" investors.

Good catch, just a quick read. I've marked it to listen to the conference call. Thanks for sharing!!!

TSIF

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#4) On April 28, 2010 at 6:32 PM, alliswell (42.78) wrote:

They are burning cash!! I am unable to trace the source of the 220M on their balance sheet. I know they are not earning anything. They had a few stock offerings in the last few years to raise cash but not much about 10M.

Revenue has consistently declined since 2005 and correspondingly cash from operations is declining since 2005. I am not sure what's going on but either they are losing their market share big time or something else.

ROA declining since 2004

ROE declining since 2004 

operating margin declining since 2004 

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#5) On April 28, 2010 at 6:40 PM, Bays (29.97) wrote:

Hmmm..

Book Value, as well as NCAV/S, have grown consistently over the past 7 years with the exception of 2009.  Currently trading at an all time low when compared to both of these values. 

In contrast, revenue has declined steadily since 2006.  

Mgmt has a decent history of efficiently investing capital as their CROIC has been positive in the last 5 years.  Although, their margins seem to be declining every year with the exception of SG&A, which has been rising every year (not good).

To me it seems like competition has been cutting into their revenues/margins.

Either way, the company is trading at less than their liquidation value.  Any decent news at all and the SP will take off.  Judging by the numbers, fair value seems to be around $6/share.

Wish I could comment on the industry, but I am by no means an expert.

My two cents,

Bays

 

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#6) On April 28, 2010 at 6:43 PM, Bays (29.97) wrote:

Having a diversified portfolio of companies trading near their net current asset value, low D/E ratio, low P/B, and a history of earnings have been proven to generate extraordinary returns. 

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#7) On April 28, 2010 at 7:22 PM, TSIF (99.96) wrote:

alliswell, some good comments, but you may have a few errors in laying out their balance sheet, income, and cash flow. By my metrics, they are building cash.  AS I posted they had INCOME of

Income Dec, 2006 was $75 Million,  Dec. 2007 was $52 Million, Dec. 2008 was $26 million. 

Their cash position has gone from:

 2006,  $203 Million

 2007,   $241 Million

 2008,  $266 Million.

They have increased their plant and doubled their R&D spending.

They have bought back $15 Million in Stock, they have not issued any.

As Bays indicated, the question is do they have anything that could act as a catalyst.  New products or upside earnings, if so, they would be rewarded. If they keep sitting on thier hands AND lose the remaining income that has been dropping 50% per year, then they would start spending savings and it would be downhill from there.

Good feedback.

TSIF

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#8) On April 28, 2010 at 10:13 PM, Bays (29.97) wrote:

A lot of constructive feedback here. There should be more blogs like this.

This stock actually reminds me of Hanwei Energy Services.

Hanwei is a Chinese energy company that faced increased competition in their wind business and had their first losing year since 2005.  They are now looking to sell off their wind business and focus on their core busines, high-pressure FRP pipes for the oil, gas, and water industries. 

They are currently selling for less their liquidation value and have been basically "left for dead". 

The company just issued 10m shares, with the CEO buying 6m of them himself.  Investors seemed to like the news because the stock has rallied from .34 to .45. 

A bit of a risky pick, but with some huge upside potential.  

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#9) On April 29, 2010 at 6:31 AM, TMFDeej (99.24) wrote:

Thanks for reading everyone.  I love discussing specific stocks like this.  It's a great way to learn from other intelligent investors.  I completely agree that more talk about individual stocks and less whining about the general state of things would be a welcome change.  I'm not saying that the macro picture doesn't matter, it absolutely does...it just dominates the posts.

Of note, another very intelligent fellow just pointed this out to me about ACTS:

"They're reporting positive operating cash flow on the cash flow statement, because of gains from trading securities. Unless they're a financial services company this line item belongs in the cash from investing section of the cash flow statement. Again, I haven't read their filings, but I'd be checking their footnotes very closely based on seeing this. "

This may be why Mr. Market hates Actions so much.  If they don't have confidence in its ability to roll out a profitable new product at some point in the future the cash burn that is being hidden by something that is not core to its business model will eventually take over and eat into the cash cushion that makes this company's stock attractive at first glance.

I suppose not surprisingly whether this is a solid investment or not all depends upon what ACTS's new products are like.  If I have a chance at some point I need to look into that a little more closely.  Let me know if you find anything interesting by listening to the conference call TISF. 

Deej 

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#10) On April 30, 2010 at 3:00 PM, Stocktowin (< 20) wrote:

Good discussions here. You might want to read my posts regarding some recent new product lines and sales info (secondary though, I am not in their finance department) on Yahoo message board:

 http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_A/threadview?m=tm&bn=27260&tid=8758&mid=8761&tof=2&rt=1&frt=1&off=1

Valuation wise, current price is still too cheap under all valuation model. I really think that if the investors community keeps on refusing to place it at least close to book value, this company will be bought by its competitors for $4+ soon. Even the management team is fearing this development now (read at their annual meeting material losely and you see it). The IP, brandname, and distribution channel that this company commands in the industry in China is too valuable for major competitors or institutional buyers who are serious about China electronic market to ignore, and tons of synergies to be realized by any horizonal or vertical integration with other companies. The first one who pulls the buy trigger on ACTS will gain tremendous competitive advantage.

Scott, FA

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#11) On May 02, 2010 at 4:23 PM, TSIF (99.96) wrote:


4th quarter and FY2009  Cash position of $271 Million($264.8 end Q3). Focus was on cost cutting, cash preservation, and new products. Cut pay executive, hiring freeze. (Later says hired 10 engineers to take advantage of talent available from recession).

CEO hired in 4th quarter, strong in R&D.  Last CEO remains a board member.  34.9% gross margins vs 30% in q3.  Buying back up to 10% of shares as market allows. (Share is low volume, few block trades, limited windows to buy back, quiet periods, etc).

4th quarter; $7.9 Million Revenue compared to $13 Million in 3rd quarter.  R&D 58% of revenue. 

Product updates, view looking ahead:

Lost $3.7 Million in Q4. Decrease in sales, despite higher gross margin.  Net income of $39K   $2.7 Million in Interest income.    Net loss $1 Million Q4, or $0.015 per share. 

Ramp of automotive products. Margins rangebound due to reduced sales and competition.  Next generation products?  Automotive, Boombox growing (15-20% of total shipments).  Growing presence in this market.  Display market under severe competition.  Color taking over monochrome, reducing their share.   MP4 exciting end market with potential growth, high def. increased to 10-15%.   Mass production in DVD/Camera, high definiton media products.  This catagory to grow to meaningful portion of revenue.  Smaller micron SoC's 35-40% of buisiness.  (0.1 mass production 2nd half 2010).   Investments in R&D can grow and product market share.  Growing presence in new markets.  Advanced MP4 should continue to grow. as should low end automotive and home audio products.  ("Solid growth potential").  

Preserve strong cash, key hiring, repurchase shares to best of ability, new products.  2009 challenging.  Entering 2010 with conservative optimism. New products PNP, high res.  Largest PnP supplier in world, centered in China, positioned to capture 2010 projected upside.  Increase gross margin 35-40% near end of year. Environment difficult to navigate.  First quarter remain weak. $ 6.5-7.5 Million.  Seasonally a difficult quarter.

=============

The weak forcast in 2010 first quarter is still down further. YoY forcast is predicted higher. Meaning it will not occur until further in the year. Will not see the record of 2006 and 2007. Next Qtr. report May 13th. I would guess that this may keep the stock depressed if the quarter is as weak as predicted. Hesitant to forcast when they will have a breakeven quarter, (without interest, etc).

I see possible upside probably long term.  This means they will have to execute. With the stong buyback, might be a good long term stock at this entry point. I think it might be a better entry point after Q1 May report.  Overall, moat (cash/book value) is high if they can stop the bleed and start to get growth. Cash postion seems well used.   

Does seem to have a long term growth strategy.  Willing to spend on R&D tells me they aren't sitting overly idle.  Could be another SMOD or SPRD.  I like the positioning for long term growth.  I like the share buyback at these prices. Analyst on call recommended dutch tender share or a larger block, lowest offers first.

I like Scott's take (comment above this).  Cash exceeds market cap considerably.  This can be bullseye on their backs. Insider and Institutional investment is weak and there is little resistance that could be done if a takeover turned hostile. At a below cash cost basis, where cash is being used wisely, balanced against 3 years of rapidly declining revenue, with the chance of new products, I'd put this on on the reward side of the risk/reward slate, but my risk level is very high. My hesitiation is I'm very impatient overall, and this one could require a real buy/hold mentality.

Good luck.

TSIF

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