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  • Apple (AAPL +2.4%) responds to David Einhorn's letter opposing Proposal 2 within its shareholder meeting proxy by insisting the proposal won't prevent the issuing of preferred stock, but simply requires that such a move receive shareholder approval. The company adds it will "thoroughly evaluate Greenlight Capital's current proposal to issue some form of preferred stock," and has been "in active discussions about returning additional cash to shareholders." Shares spiked higher into the close. (Einhorn's letter[View news story]
    No reason they can't up the dividend/use Einhorn's Preferred, and also increase the buyback so that it's more than a nominal amount. Management should show confidence that there's no better investment for Apple than Apple.
    Feb 7 04:51 PM | 6 Likes Like |Link to Comment
  • Intel In Mobile: Large R&D Makes Victory Inevitable [View article]
    Agree with raberto and newbie. Perfect analogy, is Microsoft dominating in search or mobile OS? Hmmm, don't they have more money than God.
    Even if if Intel makes progress in mobile (and they have NOT been sitting on their hands for the last decade - they missed it on Otellini's watch) - I don't think Apple and Samsung are in their future. So perhaps they are playing for 10% market share in 20% of the addressable market. Mobile will surely continue to disappoint.
    Feb 6 08:51 AM | 1 Like Like |Link to Comment
  • Nam Tai Story Intact, We Don't Believe The GM Guidance [View article]
    Turno - apologies and kudos, you are correct. In our rush to get this out, we neglected fixed deposits maturing over 3 months, which is essentially cash. They have over $4.50 of cash per share, which adds to the absurdity of valuation. Assuming EPS of $2.50-$3.00, Cap-ex equal to depreciation, and dividends of $0.60, NTE will end the year with $6.40-$6.90 per share; and of course we wouldn't be surprised EPS that's even higher.
    This further supports the idea that NamTai will establish a dividend in the $1.50+ range for 2014. We would hope that at current prices management would at least consider a repurchase program. Based on the assumption of $2.50 in EPS ($115 million net income), a $100 million buyback at $15 a share would increase 2013 EPS from $2.50 to $2.95.
    Feb 4 06:39 PM | Likes Like |Link to Comment
  • Nam Tai Story Intact, We Don't Believe The GM Guidance [View article]
    It is possible that NTE was giving realistic and not conservative margin guidance and if so, we still see $2.50 in EPS this year, for a $13 stock, with $3.50 cash, and a real estate asset that we are increasingly convinced exceeds the entire market cap of the company.

    At the same time, as we point out at great length above, management has historically been very conservative on margin commentary. If one looks at what they do and not what they say, one would expect little margin degradation. We still believe this stock is a triple.

    We have looked at various small-cap suppliers into the handset sector. We have a positive view of HIMX, and based on its balance sheet, dividend, low P/E, and increasing exposure to the smartphone segment think it's undervalued (buying under $3 per share appears to us as very attractive). We think a number of Taiwanese and Chinese companies were unfairly beaten down to a general distrust of Chinese companies due to some notable frauds. We view low P/E, legitimate players (NTE, HIMX, SIMO) as solid investments, and expect their multiples to revert to more normalized levels.
    Feb 1 09:11 AM | 1 Like Like |Link to Comment
  • Nam Tai Story Intact, We Don't Believe The GM Guidance [View article]
    Hi Manoj,

    It is a fact that only the government and peasant cooperatives can own land in China. It is also understood that land grants are essentially auto-renewed. As any observer of China knows, there has been a real estate/construction boom over the last 20 years unprecedented anywhere in history - all occurring on land that is leased and not owned. Virtually all of this has been paid for by major real estate/investment/private equity firms - many publicly listed (particularly on the Hong Kong Exchange).

    If there was any expectation that this leased land was not for all intents and purposes essentially owned, the economy of China (and the world) would crumble.

    There is every reason to believe that NTE's land should be salable in a manner consistent with every other real estate transaction in China.

    We believe it is probable that the value of the land exceeds the current market cap of the entire company.
    Feb 1 08:56 AM | Likes Like |Link to Comment
  • Nam Tai Story Intact, We Don't Believe The GM Guidance [View article]
    The reason we are short AAPL (it is a small short) is risk management. We expect NTE to massively outperform AAPL this year as NTE is gaining huge share at AAPL (ie iPad mini, perhaps macbooks, low-end iPhone, etc.). NTE should grow 100% vs. perhaps 20% for Apple. If Apple has bad news on a given day, NTE is, on average, likely to fall. We offset some of this risk by our Apple short. If Apple has positive news or if Apple sentiment improves, NTE will likely experience significant multiple expansion.

    The bottom line is that if we were going to size NTE as some percent of our portfolio, we can now size it as that percent + a few additional percent, and short Apple in an offsetting amount.

    If the most bullish scenario pans out for Apple this year, which we don't anticipate, we would expect significant outperformance from shares of NTE.

    Again, at $458 we are slightly negative on AAPL, not hugely so, as it is cheap. But we don't see meaningful positive catalysts either.
    Jan 30 12:47 PM | Likes Like |Link to Comment
  • Nam Tai Story Intact, We Don't Believe The GM Guidance [View article]
    We continue to believe this stock is a triple. Looking out 9 months, shares should be coming off a $750 million quarter (up 100% y/y !!) and likely over $1 of quarterly EPS. GM will not be 7%, but higher.
    Customarily, at the time of 3Q earnings management establishes the dividend for the following year. We would expect an increase to quarterly $0.35-$0.40 (in november they upped quarterly from $0.07 to $0.15 - and in the past have done significant y/y increases). At $0.35, or $1.40 per year, at $40 it's a 3.5% yield. At $30 it's 4.7%. Solely based on expected yields, a $30-$40 price is reasonable, especially with $5 in cash (by year-end cash should exceed $5 per share) and a valuable real estate asset.
    We are confident that we are not overstating the value of the real estate. We believe that if the sellside picks up this stock, there could be an immediate, significant increase in stock price as the market becomes aware of this asset.
    Jan 30 08:28 AM | 2 Likes Like |Link to Comment
  • Nam Tai Shares Could Triple Despite Apple's Issues [View article]
    Please see my responses to DTEJD1997 above. Not sure what part of the guidance was questionable besides GM. They said they expect to be fully utilized before year-end, ie quarterly revenues of $900 million.

    To be succinct - I don't believe the GM guidance. They are always ultra-conservative on GM (don't take my word for it, read their filings/press releases). They guided tablet GM of 5% and Smartphone of 7% when they reported 2Q, yet 3Q GM was flat at 9.2% and 4Q GM increased to 10.5%, despite revenues growing in both 3Q and 4Q due to tablets and smartphones.

    However if I did believe GM guidance and applied 7% to my 2013 revenue estimate, I get $2.50.

    So, a ~$13 stock, with $3.50 per share cash, a 4.7% dividend yield, earning $2.50 and likely to grow further in 2014 (ultrabook and iPad mini will probably happen starting 2Q/3Q - sets up for good compare in '14 vs '13).

    If you have any stocks like this to suggest, love to know.

    And the kicker is that we continue to do work on their real estate holdings. It could be worth more than the entire market cap.

    Anyhow, article tomorrow details all this. We've been aggressively buying.
    Jan 29 06:48 PM | Likes Like |Link to Comment
  • Nam Tai Shares Could Triple Despite Apple's Issues [View article]
    You make a good point, GM could be enhanced by some start-up dollars that don't recur in 2013. Not what we believe to be the case but possible. The offset to that is 1) higher production volumes ought to improve efficiency, 2) depreciation spread over more production revenues (no incremental depreciation on higher sales) and 3) headcount doesn't grow as fast as revs - headcount ended the year at 7,000 with 50% utilization and increases only to 10,000 at 100%. If you assumed each laborer made $500 per month, that would be $3.5 mil per month or $10.5 mil per quarter. At almost 2x revs based on 10,000 employees, that is $5 mil per month or $15 mil per quarter. That's a nice scale benefit. Just hard to believe margins would fall as much as Koo suggested.

    We have a follow-up piece that hopefully hits tomorrow. Based on somewhat higher rev assumptions than previous based on our view that they are full in 4Q ($2.45bn for year) we get EPS of $2.50 at 7% GM (also get $2.92 at 8% and $3.35 at 9%). With $3.50 in cash and $2.50 EPS what is a short playing for?

    Also, re: the 3mn sq ft., the call transcript is available on this website. The last or 2nd to last asking questions asked about the property. The value may sound crazy, but this is prime real estate (think major global financial center). Spend a few minutes doing a web search on Shenzhen real estate, the valuations truly are remarkable.
    Jan 28 11:58 PM | Likes Like |Link to Comment
  • Nam Tai Shares Could Triple Despite Apple's Issues [View article]
    Please see my response to DTEJD1997 below.
    Jan 28 08:04 PM | Likes Like |Link to Comment
  • Nam Tai Shares Could Triple Despite Apple's Issues [View article]
    I think earnings will exceed $3. I DO NOT BELIEVE MANAGEMENT'S GM GUIDANCE. I repeat (and I hate all caps) I DO NOT BELIEVE MANAGEMENT'S GM GUIDANCE. They guided potential margin pressure in every press release in 2012, and said on the 2Q call tablet margins of 5% and smartphone of 7%. Over the course of 2012 GMs improved over 700bps. And if you exclude the flex printed circuit board business in 4Q ($2m+ loss) GM was 10.9%.
    They warn about GM every year.
    Oh, here's a good quote:
    "The second quarter of 2007 was still difficult for Nam Tai as the same business environment that we discussed in our announcement of first quarter financial results continued into the second quarter. The competitive environment remains intense and we expect resulting pricing pressures from customers to remain a significant challenge for the electronics manufacturing services industry in the coming quarters
    and years." http://bit.ly/T2fnGO
    Of course GM was up 120bps sequentially in 3Q.

    So, we dismiss management's GM guidance. It's absurd. It implies that if they get full at $900 million per quarter, the next $430 million is at
    3% GM.

    If you dismiss the GM, which we do, then the call was great. Working with Sharp on IGZO is essentially confirmation that they will get iPad mini and probably gain share on iPad. The ultrabook thing is new and obviously positive.

    Also, the land discussion is extremely positive. Would you now concur with our previous assessment of its value? 3 million buildable square feet in what management has now confirmed is a very high-end economic zone. It is hard to come up with a scenario of less than $200 per buildable foot, but we believe could easily be $300-$400 or more - that is it could be more than the current enterprise value even if sold in 3 years, discounted back 10% per year, and taxed at 25%.
    Jan 28 08:00 PM | Likes Like |Link to Comment
  • Nam Tai Shares Could Triple Despite Apple's Issues [View article]
    They are not spending more on expansion.

    They guided to lower GM, however, they ALWAYS guide to lower GM. Since there is no sell-side and no following, this is probably not understood. They ALWAYS guide to GM declines - it simply does not play out this way. There was a ton positive on the call and investors latched on to the one thing that is not credible.
    Jan 28 06:32 PM | Likes Like |Link to Comment
  • Nam Tai Electronics (NTE): Q4 EPS of $0.80. Revenue of $468.5M (+263% Y/Y). (PR[View news story]
    Terrific quarter from Namtai, particularly on margins. Their outlook for growth in 2013 is great. Cautious commentary on GMs is par for the course, as they have been cautious in every press release and filing in 2012, yet GM improved 700bps from 1Q to 4Q. Based on 4Q EPS of $0.80, now at a $3.20 EPS run rate, for a $14 stock, with $3.50 cash, no debt, and likely significant growth in 2013.
    Jan 28 08:03 AM | Likes Like |Link to Comment
  • AT&T Sells Just A Couple Of iPhones (8.6 Million Of Them) [View article]
    The number of iPhone 5 as a percent of iPhones sold fell significantly as a percent of "leading edge" iPhones. While some of this can be attributed to manufacturing bottlenecks, this does not bode we'll in terms of expectations of strong demand for next gen products or ASPs.
    Apple will continue to grow, however growth looks to be slowing and margins appear to have peaked....hmmm, sounds a lot like Intel, Microsoft and other single digit P/E tech value stocks.
    Jan 27 07:44 PM | Likes Like |Link to Comment
  • Rocky Mountain Is A Chocolate Covered Growth Stock [View article]
    This company has increased revenue 80% since 2003, representing less than a 7% compound annual growth rate and in NO SINGLE YEAR has this achieved year over year growth of 20%. Yet you say, "I don't know what it's worth", and forecast a 20% CAGR for the next 10 years. Do you know the number of public companies that achieve a 10 year revenue CAGR of 20% - very, very, very few. And there is NO historic precedent for your assertion.

    This is an extremely amateurish article, but the folks at Seeking Alpha are more to blame than you. They can publish whatever they want, but to make this an "editor's pick" - pathetic.
    Jan 27 04:36 PM | 2 Likes Like |Link to Comment
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