Syntax-Brillian: Worth a Closer Look

Well, it certainly isn't the Bulls that anticipated a short squeeze. Following the earnings miss of three cents and the announcement of a placement of over 25 million shares, Syntax-Brillian (BRLC) declined from approximately $8.50 on the evening of the earnings/placement announcement to a close of $4.56 last night. There have been some factual reasons for BRLC's decline in share price; the first being the obvious dilution in the share count caused by the recent secondary offering, and the second being a fine imposed by the FCC for a large amount close to $3 million.

Are there any reasons to believe this is only a temporary setback in share price? In our opinion, yes, there are. Consider the short count of 14.7 million shares and whether or not they can continue to dominate in light of anticipated Q4 results and forward performance that can only be enhanced by the secondaries cash infusion. Then think about the questionable timing of what some might perceive as well placed propaganda against Syntax-Brillian during a period when the company could not, by law, respond in a meaningful way.

First, there was a somewhat nebulous two paragraph article by Barron's trying to convince the reader that Kolin spent over 165 million dollars to pump up BRLC's books in order to sell one million shares at $5.75; shares that they acquired at $5.00 last year. Then, a blog accentuating Sony's (NYSE:SNE) entrance into the low priced LCD marketplace where the author tries to establish a price comparison as a negative for Syntax-Brillian when Sony has yet to officially introduce any low end products and has certainly not mentioned price points. And finally, an analyst "revealing" how Syntax-Brillian was disassociating itself from Circuit City (NYSE:CC), a charge which the company absolutely denied. Were these designed to contribute to a downturn in PPS? Now that the company is coming out of the mandatory quiet period, the effects of these somewhat misleading articles can be countered.

Now, let’s look at the intrinsic value of BRLC and why you as a reader might consider an entrance point. New share count projects FY 08 (starts in three weeks) EPS at .75 per share, and BRLC is trading at a forward PE of 6! This can only be considered bargain basement when compared to the industry in general. Any FCC fine would amount to less than a one time 3 cent charge per share. The fine is being appealed and even if upheld would be assumed mostly by BRLC suppliers. Calendar 2007 year Top line revenue is projected at $1.17 Billion dollars, and with a new share count of 90 million shares, over $12.00 revenue per share. Numbers any emerging company would kill for.

Just as the dilution of the placement and FCC fine gave the PPS a warranted hit. Closer review shows that the EPS estimate decreased from .85 in FY 08 to .75. This 12% reduction in EPS is in truth offset with the higher book value of 1.52 per share, given the recent infusion of 143 million. The almost 45% reduction in PPS since the announcement is, in our opinion, unwarranted, and will not hold for long

BRLC has, like any small company that experiences explosive growth in a short period of time, endured its share of headaches along the way. But the fact remains that Syntax-Brillian's market share of LCD televisions has been steadily growing; their margins exceed the industry average; and the products review better than higher priced competitor models. Is a billion dollar a year "profitable" company trading at a forward PE of 6 worthy of consideration? Syntax-Brillian Bulls believe it is, and perhaps you should take a closer look.

Disclosure: Author has a long position in BRLC

BRLC 1-yr chart