Actions Semiconductor Co., Ltd. (ADR) (NASDAQ:ACTS)

Action Semiconductors (ACTS) has been a perennial net-net since 2009. I started looking at it during the 2008-09 crises because the company was trading at 50 cents for a dollar. Here is the link to the article when I first looked at it Getting started - ACT(S)

Since the crises the company’s price almost doubled in 2010 and the significant margin of safety went away. However, with the recent spate of fraud (or potential fraud) in Chinese stocks, there is nervousness surrounding all Chinese stocks and ACTS (though not a Chinese stock but has most of its operation in China) has also suffered as a result.

I decided to take a re-look at the stock to see if the stock is appealing at current prices.

Company Background

ACTS is fabless semiconductor company that engages primarily in the businesses of designing, developing and marketing SoCs (Systems-on-a-Chip), for portable media players. ACTS primarily designs these chips but outsources manufacturing of all its products to third party contractors - He Jian, and United Microelectronics Corporation. ACTS provide these contract manufacturers monthly targets and thus retain lot of flexibility around what needs to BE produced. This allows company to have limited capital expenditure for manufacturing but also limited need to have a lot of inventory on their books. Company also uses independent vendors to help with testing and packaging functions depending on capacity constraints.

Company sells most of its products to value added distributors or contract manufacturers. Thus the company doesn’t have a lot of brand recognition.

Company Financials

The company was listed in November 2005 on Nasdaq through an IPO. In that respect it differs from many of the Chinese company which were created through reverse mergers. Company has also used Deloitte as its auditor for a long time which gives me added comfort. Without the above 2, I would not be looking at any Chinese company (this is actually based out of Cayman island).

I have used annual reports for the 5 full years (2006-2010) and extrapolated the numbers from the 1st quarter of 2011 for 2011.

Unfortunately, the table doesn't come through. Please go to the following website http://valueinvestormusings.blogspot.com to view the full article.

Assumptions:
I have assumed that 2011 numbers will be four times of what has been observed in the 1st quarter so far.
MV has been derived by looking at the dilution share count at the end of period and multiplying by the market price at the end of the period.
EV is MV – liquid current assets (there is no debt)

A few key things stand out:
Revenue of the firm has shrunk dramatically over the last 5 years to 25% of what it did in 2006.
Market value of the company has followed suit as well.
This has resulted in Enterprise Value of the company becoming negative. It has been negative over the last 3 years. I actually looked at it in Feb 2009 (Getting started - ACT(S)) when things were looking quite bleak.

It is the negative Enterprise Value or “Net-Net” aspect that got me excited then and that gets me excited now as well.

To better understand the value in the stock let us look at the Balance Sheet.

Balance Sheet

A few things stand out from looking at the balance sheet:
Company has increasingly put Cash to work into Marketable Securities to earn interest income (Q1 2011 seems to be an aberration).
Liquid current assets has not changed much over the last 5 years, though it has gone down significantly since end of 2008.
If the company were to be liquidated today the owners will get a 35% jump in value. This valuation is a very conservative valuation because I have excluded all assets which are not liquid. However, I have included all liabilities when coming up with Liquidation value.

Qualitative Factor

ACTS had a change of guard last year with Niccolo coming as CEO in place of Nan-Horng. Niccolo is much more focused on Research and is aggressively building that team. The first result of that effort will be seen later in the year when their series 27 and series 28 products hit the tablet market.
ACTS has been recently tied up with MIPS Technologies to bring Honeycomb (Android 3) to the MIPS architecture. It is the first positive news from ACTS in a long time.
ACTS has also been investing heavily in the recent past. This is reflected in the reduction in Liquidation value in the last quarter.

Conclusion
ACTS is trading at a significant discount to its cash value. This is reflected in the fact that if the firm were to liquidated today it will provide at least 35% return to its current holders.
ACTS recently had good trial runs of its Series 27 and 28 products. These series are now moving in production and the tangible results of those should show up in the 2nd half of the year. It also recently tied up to support Android 3 on Tablet.
The best part of buying ACTS is that you are not paying anything for the future. If things work out there is a significant upside. If they don’t there is still upside with the liquidation value. I prefer these type of situations J

Disclosure: I currently own ACTS.

Disclaimer: All views expressed in this article are the author’s own views. They don’t represent the views of any company or organization that the author may be affiliated with. This is not a recommendation to buy or sell a stock. You need to do your own diligence before buying or selling a stock.

semiequip2011

My bet is on a big increase

This ten-year-old, Zhuhai, China-based company is a fablesss designer of the electronics used in hand-held consumer products, historically MP3 players.
They compete on the cutting edge of design and functionality for their products, up against companies such as ALi, Anyka, Broadcom, NXP Semiconductor, PortalPlayer, Rockchips, Samsung, SigmaTel, Silicon Motion, Sunplus, Telechips and Texas Instruments.
They IPO’d on the Nasdaq in Nov 2005, underwritten by Credit Suisse First Boston. They initially had very good success with their electronics, which peaked for them in 2006. After that, competitive pricing pressure and lower volume drove their revenue down from $170M/annum to $38M today.
As revenues declined, profits finally went into the red in 2009, entirely due to the necessity of continuing the expenditures for new product development. They stabilized in 2010, generating a small profit. Gross margins, once over 50%, are now relatively stable at about 40%.
Their R&D program has generated new products for the MP4 market, including applications in the automotive audio and boom box industries. Late in 2010 saw their first sales into the hand-held advanced-video game-player market with their Series G1000 product line. If these product launches are ultimately successful, Actions will start to see their revenue grow once again by mid-2011.
For the first quarter, ending March 31, 2011, Actions Semiconductor estimates revenue in the range of $7.5 to $8.5 million, gross margin will be approximately 40% and operating expenses higher on a sequential basis.
Analysts have largely abandoned the company. Rick Fearon of Accretive was the only questioner on the year-end conference call.
There are 430.6M shares outstanding and each American Depository Receipt (ADR) represents six shares. They have $233M in cash and marketable securities and no debt, which comes to $3.25/ADR. They have bought back 85.4M shares in the last three years. They do not pay a dividend and will not in the foreseeable future.
Disclosure: I have taken a small position, based on the value aspect. It would be a bit larger position if I had more evidence of how successful their new product lines will be.

Profile
Actions Semiconductor Co., Ltd.
15-1 No 1 HIT Road
Tangjia
Zhuhai, 519085
China - Map
Phone: 86 75 6339 2353
Fax: 86 75 6339 2251
Website: www.actions-semi.com

Details
Index Membership: N/A
Sector: Technology
Industry: Semiconductor - Specialized
Full Time Employees: 624

Business Summary

Actions Semiconductor Co., Ltd. operates as a fabless semiconductor company in the People?s Republic of China. The company designs, develops, and markets integrated platform solutions, including system-on-a-chips (SoCs), firmware, software development tools, and reference designs for the manufacturers of portable media players. Its SoCs are integrated circuits that incorporate digital signal processor, a micro controller unit, embedded memory, codec, a power management unit, and other components. The company?s SoCs products also comprise on-chip memory, controllers for color liquid crystal display, and analog components, including digital-to-analog converters, phase lock loops, and USB transceivers. Actions Semiconductor Co?s solution development kits include the embedded firmware code, software tools, and documentation to utilize its SoCs in portable media players. The company?s firmware utilizes an embedded structure design with interface that allows customers to pick and choose functionalities and add new device drivers. Its manufacturing software tools also allow its customers in the mass production of products based on its turnkey process. The company?s reference designs consist of detailed specifications of other required components and references, which allow customers to assemble a portable media player. Actions Semiconductor Co. also offers semiconductor product testing services. The company sells its integrated platform solutions directly, as well as through distributors to portable media player manufacturers, brand owners, and value-added distributors in China and internationally. Actions Semiconductor Co., Ltd. was founded in 2001 and is headquartered in Zhuhai, the People?s Republic of China.

***All above information from YAHOO FINANCE***

ACTS is a great little company that for some reason isn't getting a lot of love. Unlike so many micro caps, it MAKES MONEY.

Sure, not lately, but it has made money, which is more than a lot of its peers can say. Further, and again unlike a lot of its peers, it has NO DEBT. I don't know how these guys makes chips without spending money, but they do. Labor must be cheap in China!

Right now, Wall Street seems to think this company would be worth more if it shut down and sold off its assets. If ACTS can return to profitability, that should change. This all hinges on managements ability to turn semi-conductor fabrication into semi-conductor sales.

Hm, semiconductors in China...........good thing. Buy, buy, buy

lots of cash, no debt

sector- continued growth

Still a balance sheet wonder, if they can get through this mess there's some upside.

Piggy back...

The snapshot is so good I have to believe ACTS will help lead the semi pack when all the price discovery finally gets factored into the equities markets. I'm significantly down on ACTS at the time of this pitch - and I'll hold it until it turns around (I hope).

Re-upping on the lows

NCAV play with over $3.00/share in cash.

Low debt makes this one a fairly safe bet although it may take a while for the sector to return.

Trading at less than half of cash position with no debt and still generating positive cash flow from operations in trough market conditions for semiconductor companies. Less exposure to US market and tapped US consumer than some competitors. Recently announced stock buyback. Lots to like here and the price is way right at a buck and change.

china stock

At $1.90, this stock is trading below its cash and "marketable securities" reported on the 8/6/08 6-K filing (though I don't know what constitutes the "marketable securities" part). The company is buying back ADS shares. While I don't feel the company's prospects are great, there is a margin of security here, and the stock should bounce back when China ADRs/ADSs rebound.

I'm experimenting with a particular stock screen. Super low PE, PEG and P/B with a great growth rate makes this an attractive stock.