7 Reasons to Stick With Syntax-Brillian

Syntax-Brillian (NASDAQ:BRLC), a company produces LCD televisions, digicams and microdisplay entertainment products, has been in the thick of action recently due to reasons as varied as a lack of compliance with NASDAQ listing requirements (majority independent directors requirement), the departure of its CFO, IP infringement allegations, and providing depressing revenue outlook.

The company has lost almost 60% of its value since the year's high made in January. The sharpest dip for the year occurred on September 13 when the stock came down 35% after the company provided a weak revenue outlook for Q1 '08 ($170M-180M Vs expectations of $256.6M), and lagged Q4 '07 EPS expectations of 12c by 1c. The weak outlook was attributed to the tight credit situation that affected its supply chain partners in Asia. The stock has been trading side-ways since then, with intermittent volatility.

Here are some reasons on why this is a stock to be glued to:

1. The company has secured a five year $250M new credit facility, that could help it provide some liquidity to its supply chain. The company has also been reported to be adding some new supply partners.
2. The company continues to come out with product innovations (USB upgrade on Olevia HDTV) and industry benchmark products, which has been wining market recognition. The most recent award went for Olevia 747i LCD HDTV that was selected as the best in 38- to 49-inch category by Wired Magazine, in its Winter 2008 Test edition.
3. With the acquisition of Vivitar, BRLC has shifted from its earlier positioning as a TV company to that of a brand catering to digital entertainment and has been pumping up its brand campaign through ESPN and AEG. This shift, however, has not affected the company's disruptive price positioning - selling at a price range 30%-50% below many of its competitors. (Visit any of the product review websites and you would see the rave reviews for its strong "Value for money" attribute). Net impact – Sales should pick up.
4. In addition to extending the distribution channels for Olevia and Vivitar, the company has launched a B2C site for these two brands. These will help the company to capture better margins.
5. Its planned geographical expansion to high growth value added markets in Latin America, EU and Asia Pacific will continue to add to to the topline. BRLC plans to leverage its brand equity in UK to expand to the EU market (In terms of marketshare in UK, Vivitar products stands at the third position with a share of almost 13%). The strategic financing will help BRLC to use Vivitar channel in expanding Olevia products to EU.
6. With the new financing, the company is planning add a national channel to is sales network. The company's is also chalking out methods to capture the expected boom in HDTV market in China as the Beijing Olympic approaches.
7. For calendar 2008, the company expects to achieve a revenue growth of 60-80% YOY, almost double the estimates for the industry as a whole.

The bottomline: an EPS expectation of 44c for the year ending June 2008 and 92c for the year ending June 2009 (Source: Yahoo Finance). At $4.1, the stock is trading at 9.3x earnings for year ending June '08 and 4.5x earnings for year ending June '09 - sheer value that should be acknowledged by the market sooner or later. Among the few issues that I am unable to make a clear call on is the IP Infringement claim made by Funai (which the company has denied, of course). However, the fact that BRLC is only one of the 14 companies affected by the Funai allegation provides some comfort.

The company is due to announce its results today for quarter ending September 2007. Will that provide a trigger for the market to react to the excellent fundamentals?

Disclosure: none

Comments

[michael di ...:]

Mmmm at the time of the writing, it was $4.10 and now (June 29th 08) is it $0.53. I wonder if the seven reasons are still intact. In my case, I jumped in at $0.55 so it is not too bad. I'm hoping that the figures that will be released soon will kick it up. It might kick it down. I think that the up is larger than the down. That is why I went long on this issue. Good luck to the longs

2008 Jun 29 07:09 PM