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 (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 (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

Comments

[R. Ennis:]

This is a fantastic article. Thank you for all of your hard work and research.

I believe what you are saying is correct!

2007 Jun 14 10:21 AM

[RC Martin:]

The writer is flat out misleading readers by stating suppliers will be picking up the tab for the recent fines handed down by the FCC. Yes Brillian does have MORE legal issues regarding import duty that could be shared by suppliers, namely Kolin, but the almost $3MM for interstate transport of LCD units that violate FCC regulations belongs solely to Brillian. This is not the firat time the write has penned the falsehood and despite being asked to provide support for his claim suppliers would share in this issue he provides NONE. A guess or deliberate attempt to mislead, you decide.

As for the healthy book value he seems to lean heavily on, one might like to know that almost $80MM of the assets used in that calculation are vapor assets, intangibles and goodwill. Removed from the calcul;ation and the book value shrinks to less than a buck.

And one might also like to be aware that while business is booming according to mgmt, collecting on those sales is, well, a bust. At the time the prospectus was prepared for the secondary more than $69MM of Asian receivables were PAST DUE and those Asian sales receive 120 day terms to begin with.

Much has also been made of the cash raised and all the uses but the one use I don't see written is the debt that comes due prior to year end. Upon receipt of the proceeds of the secondary $20MM was used immediately to repay a BRIDGE loan however $76MM more debt is coming due between September and December. With another quarter of Asian sales that go uncollected beyond 120days its altogether possible the mgmt team could manage the firm right back into the precarious position of insolvency they were just in.

The loss of Circuit City, the absurdity of relying on SCHOT to market their product to buyers who don't pay on a timely basis, the arrogance of mgmt to ignore FCC regulations and incur almost $3MM in fines, the still weak cash position of the firm are all very real issues that should be red flags for anyone before you entrust your investment capital with these people.

Its wonderful the aforementioned writer is fitted with snug rose colored glasses but this company is wart laden and run by seemingly incompetent men, afterall how does a CFO "FORGET" taxes when filing reports?

I am neither long or short BRLC at this time and write only to present the clearer view of BRLC's current state of affairs. The previous writer presented the pros for the cons in my opinion.

2007 Jun 14 10:32 AM

[netfixer:]

Mr. Sanmina comments that the author of the article has published a falsehood with regard to the fine the FCC has levied against Syntax-Brillian. He further states that no support has been provided to substantiate the belief that the FCC fine is related to an added Customs duty levied against the company.

Samina's position is incorrect. An explanation has been provided to him personally. He just refuses to acknowledge that any opinion other than his own is acceptable. It should be remembered that the company has challenged both the FCC and Customs fines. To quantify the opinion that Kolin (the supplier of note) may be liable for part or the whole of any FCC fine, consider this:

There are two government agencies involved, Customs and the FCC and consequently two demands for monies from the company. Both are being challenged. Because the FCC fine is based on an import declaration (it says this specifically in the company's recent secondary prospectus) and SB is challenging the additional levy because, and I quote, "a dispute with Customs regarding the tariff classification of imported multipurpose monitors" and "We believe Customs has improperly classified and valued the merchandise imported by us", there is reason to believe that the two potential levies, though from two different agencies, are actually related. FCC rules are well defined. The company is contesting the fine and states it has strong reason to believe it is without merit. Is it possible that the fine is based on a Customs misclassification? There is nothing that says otherwise, therefor it is reasonable to believe that the FCC fine and the added Customs levy are related. It may also be true that if one challenge is successful, the other will automatically be successful.

Sanmina is surely entitled to his opinion about the fines, levies, and the conditions of Syntax-Brillian's financials. But, it is only opinion. He cannot conclusively show that the Customs levy and the FCC fine are not related. The author is also entitled to his opinion, and the above paragraphs provide at least a logical basis for that opinion. Sanmina should be gentleman enough to acknowledge the basis for the opinion and retract his accusations against the author of spreading faleshood and deliberately trying to deceive.

2007 Jun 14 12:56 PM

[R. Ennis:]

hmmmm, are you the sandy_sanmina that has posted over 2000 times on the BRLC yahoo board? that seems to me like someone who has some position in this stock.

2007 Jun 14 12:36 PM

[chiggins:]

Best Buy now sells BRLC's Olevia

www.bestbuybusiness.co...;showAddButton=true&am...

2007 Jun 14 01:06 PM

[RC Martin:]

www.fcc.gov/eb/Orders/...

III. DISCUSSION

A. Failure to Comply with DTV Tuner Requirement

7. We conclude that Syntax-Brillian apparently willfully and repeatedly
imported and shipped in interstate commerce television receivers that
do not comply with the DTV tuner requirement in violation of Section
15.117(i)(1)(i) and (ii) of the Rules. Syntax-Brillian admits that,
after the July 1, 2005 deadline for large-size screen receivers, it
made eight interstate shipments of a total of 165 non-DTV-compliant
large-size screen receivers. Syntax-Brillian also admits that, after
the March 1, 2006 deadline for mid-size screen receivers, it imported
on 88 dates a total of 28,430 non-DTV-compliant mid-size receivers and
made 1,765 interstate shipments of a total of 43,892 non-DTV-compliant
mid-size screen receivers. In all, Syntax-Brillian imported and
shipped interstate on 1,861 occasions a total of 72,622
non-DTV-compliant television receivers.

A. Proposed Forfeiture

8. Based on the analysis set forth below, we conclude that
Syntax-Brillian is apparently liable for a forfeiture in the amount of
$2,899,575 for willfully and repeatedly importing and shipping in
interstate commerce television receivers that do not comply with the
DTV tuner requirement in violation of Section 15.117(i)(1)(i) and (ii)
of the Rules.

I would imagine Brillian can import and PAY duty tarriffs on any sets they wish. Kolin could even assist in the payment of duty. But why in heavens name would any supplier be responsible for paying fines related to the interstate transport of product AFTER ITS BEEN RECEIVED AND DUTY APPROPRIATELY PAID? tHE FINES WERE FOR INTERSTATE TRANSPORT, HECK bRILLIAN CAN IMPORT ALL THEY WANT AND PUT EM IN A WAREHOUSE IN ONTARIO.

2007 Jun 14 02:41 PM

[netfixer:]

Mr. Sanmina, quoting from the FCC doesn't change anything. The company is disputing this fine as well as the additional Customs levy. They have grounds to do so in their opinion. Mr. Steven Fox of Merrill Lynch was quoted in Barons this AM as saying that the issue was addressed in the secondary prospectus and that there is reason to believe that Kolin is responsible for up to 2/3 of any fine, if, in fact, the fine is left standing after Syntax-Brillian's appeal.

You quote chapter and verse from a FCC document without any knowledge whatsoever regarding why the company is disputing the fine. That is disingenuous. While you claim to have no position in this equity, your adamant refusal to even consider opposing opinion belies your claim.

These are my opinions only.

2007 Jun 14 03:52 PM

[RC Martin:]

Hysterical coverage referred to as "PROFESSIONAL"

www.antandsons.com/new.../

ANT AND SONS CUTS AND PASTES A BLURB PUBLISHED HERE ON SEEKING ALPHA, AND WRITTEN BY A YAHOO POSTER BOY AND references it as research. I hope they'll include my rebuttal next time.

What passes for "PROFESSIONAL" today is deplorable.

That is the opinion of this writer who holds NO POSITION IN BRILLIAN.

2007 Jun 14 02:51 PM

[netfixer:]

Mr. Sanmina, name calling doesn't change the fact that others hold a different opinion from your own. And their opinions have as much weight as yours. The only hysteria appears to be yours. You are certainly entitled to believe what you believe. But to post your opinion in the midst of a commentary that is disparaging of others is much more unprofessional than what you attribute to the Ant and Sons position.

These are my opinions only.

2007 Jun 14 03:58 PM

[RC Martin:]

I am an individual investor and do not represent myself to be a Wall Street Professional Firm.

For a firm to hold itself as "PROFESSIONAL" and offer nothing more than a cut and paste of a blurb written by a Yahoo poster is a comic strip offering. If that represents the degree of PROFESSIONALISM they offer it speaks volumes of why readers should chuckle and use the stuff as comic relief.

2007 Jun 14 05:55 PM