Trio Tech International: A Microcap with Strong Potential

| About: Trio-Tech International (TRT)

Trio Tech International (NYSEMKT:TRT) was the leading gainer on the AMEX on Friday, up about 50% on tremendous volume for the stock. Trio-Tech International provides third-party semiconductor testing and burn-in services primarily through its laboratories in Southeast Asia.

Headquartered in Van Nuys, California, the Company also designs, manufactures and markets equipment and systems used in the testing and production of semiconductors, and distributes semiconductor processing and testing equipment manufactured by others.

The stock was moving because of a strong 4th quarter earnings report. For the three months ended June 30, 2006, total revenue increased 61% to $9,500,000 compared to $5,901,000 for the fourth quarter of fiscal 2005. Net income for the fourth quarter of fiscal 2006, net of income taxes and minority interest, increased to 1000% to $705,000, or $0.22 per diluted share.

This compares to net income for the fourth quarter of fiscal 2005, net of income taxes and minority interest, of $62,000, or $0.02 per diluted share. A 22 cent EPS quarter is pretty impressive for a microcap company with a stock price of $9.

Per the Company’s press release it sounds like business should continue to improve. The CEO said: “As evidenced by our strong backlog, conditions in our primary markets are favorable, and we are optimistic about Trio-Tech's continued growth in fiscal 2007."

Additionally, total backlog increased to $16,294,000 at June 30, 2006 from $9,365,000 at June 30, 2005, including testing service backlog of $12,030,000 at the end of fiscal 2006 compared to $7,384,000 at the end of fiscal 2005. The company also announced last week that it is expanding its facility in China to handle additional business.

Another thing I like a lot about this company is it has over $10 million (over $3 a share) in cash and basically zero debt, which is pretty rare for a microcap company. Therefore, the stock is not subject to a secondary offering near-term and more importantly the Company has cash to put to work through an acquisition or expansion that would yield incremental EPS growth. Alternatively, the Company could also declare a dividend as it did last year (50 cent dividend in December 2005).

Insiders also own of 37% of the stock which is something I always like to see as they are bound to work in shareholders best interests.

I think this stock has the potential for additional gains even on top of the strong move on Friday for the above mentioned factors and also because the float is only 2 million shares and the market cap net of cash is only around $20 million. Additionally, I noticed I could no longer short the stock at any of my brokers which means there must be a pretty big short interest built up on Friday. With these strong fundamentals, the low float and a growing short interest I think this has the potential to catch big momentum and rise rapidly over the near term.

One final note is TRT is in the same business line as some recent successful IPOs (EGLT and VRGY) who have had good momentum recently. One might also wonder if one of these newly minted IPO companies flush with cash might be looking for acquisition candidates. If so, TRT may be attractive to them as they look to grow their businesses.

Disclosure: Author is long TRT