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Lejun James Shao is the founder of www.myIRAs.net (http://www.myIRAs.net/), WhitePine Investment Inc of USA, and CEO of WhitePine Software Inc, Beijing, China. He was the top finisher in MSN's 1st US One Million Dollar Investment Contest, "Strategy Open Tournament," with a +45.88% return in 4... More
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  • DEXO - Q1 Earning Preview 11 comments
    Apr 25, 2012 1:03 PM | about stocks: DXM

    DEXO will report its Q1, 2012 earnings tomorrow (04/26/2012) before market open. I would like to present my earning preview in the following based on company's own guidance..

    Before presenting my Q1 earning estimates, I would like to look back how well my Q4, 2011 earning estimates was.

    I gave my Q4 2011 earning preview one week before company's earning release. The following table showed my estimates and the actual result:

    From the table, it can be seen that I was quite accurate on my estimates about company's D&A and interest expenses. The revenue was at the low end of my estimate. But production&distribution cost and S&A expenses made big improvements. Compared with Q3, 2011 results, we can see that cost reduced 130 base points from 20.00% of revenue to 18.71% of revenue and S&A reduced from 40.27% of revenue to 38.97% of revenue.

    Net profit before income tax was $23.50 million, which is only $4.62 million shy of Q3, 2011 result even revenue was down $19.37 million and it was at the high end of our estimate

    Net profit after income tax provision was $5.54 million or $0.11/share and it is a surprise for me as the income tax provision took 76% out of its net profit.

    Now the Q1 earning preview:

    During its Q4 2011 earning conference call, the company gave the following guidance for 2012:

    • Revenue : $1,225 - $1,300 million
    • Additional cost cut: $120 million
    • Free cash flow: $300 - $375 million
    • adjusted EBITDA: $500 - $575 million
    • Q1, 2012 revenue slightly lower than Q4 2011

    At the end of 2011, the company had $257.90 million cash with $2,510.0 million debt. Net asset is negative of -$9.0 million

    Now my projected income statement for Q1, 2012:

    Revenue: the company indicated that revenue will be slightly lower than Q4, 2011. Therefore we give $350 million as our estimate.

    Cost maintains as the same margin (18.70%).

    I project a further reduction from their S&A expenses: from 38.97% to 37.1% with higher D&A cost ($73 million) and the same amount of interest payment ($55 million).

    Net profit before income tax will be $26.53 million, about 10% higher than Q4, 2011 result.

    I have no idea how much the company will pay for the income tax and will leave it blank here.

    I project 50.25 million shares by the end of Q1, 2012.

    Therefore net profit will be $0.52/share for Q1, 2012 before income tax provision and one-time gain.

    During the first quarter, 2012, company bought back $142 million of its debt using $70 million cash. This will give $72 million or $1.44/share one time gain .

    Therefore the company may report $1.96 EPS before income tax provision.

    Book Value: $140 - $9 million + $20 million (Q1 net profit) = $151 million = $3.00/share.

    Stock has lost about 50% of its value since its recent high of $2.48. At $1.25, I believe that it is undervalued and will be a good entry price for long term investors.

    Disclosure: I am long DEXO.

    Stocks: DXM
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Comments (11)
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  • Shailesh Kumar
    , contributor
    Comments (105) | Send Message
    James, great analysis. I feel the company should do a little better on the revenue line given that Q1 is generally better than the other quarters for Yellow Pages but I will defer to the company's guidance on that one. Hopefully the costs are down a little as well in line with the cost reduction targets for the year. We shall see what they report soon, won't we!
    25 Apr 2012, 03:26 PM Reply Like
  • atrickpay
    , contributor
    Comments (504) | Send Message
    James you think this if good for long term investors? I think the company has a unsustainable business model, and will be going out of business in a few years.
    Further I think if this thing gets EPS of 52c tmrw, it spikes over 2.00/share
    25 Apr 2012, 03:58 PM Reply Like
  • jsIRA
    , contributor
    Comments (4430) | Send Message
    Author’s reply » It should report a profitable quarter. Hard to figure out the income tax provision.


    Net profit before income tax should be at least $20 million I guess.


    But it is hard to predict how market will react tomorrow.


    My target price for 2012: $3.00.
    25 Apr 2012, 04:35 PM Reply Like
  • Guillermoleon
    , contributor
    Comments (94) | Send Message
    3$ by end of 2012 is more than 200% upside. wow! if that happends i will follow you ... but it is true the Book Value today is way higher than 0.9$ actual price... so there is a light at the end of the tunel at least... dexo still reporting very good news...
    4 May 2012, 03:01 PM Reply Like
  • Shailesh Kumar
    , contributor
    Comments (105) | Send Message
    They went aggressive on D&A, which is fine as the earnings are good enough to allow them to clean up the balance sheet a little more.


    But since the change in the amortization schedule will stick on the remaining quarters, it is a significant signal from them to the community that the Q2 - Q4 earnings are going to be able to support this.


    Also note there comment about revenue stabilizing.
    26 Apr 2012, 06:58 AM Reply Like
  • atrickpay
    , contributor
    Comments (504) | Send Message
    so they had eps of 1.15/share for the quarter?! I've never seen such a high EPS to s.p. figure.. At 1.30/share..that eps figure is 88% of it!
    Also their working capital is negative..i'm not sure what to make of all this yet
    26 Apr 2012, 09:25 AM Reply Like
  • jsIRA
    , contributor
    Comments (4430) | Send Message
    Author’s reply » The only positive is its solid growth in digital bookings, up 32% yoy.


    I sold all my holdings this morning in pre-market trading at $1.38. Still made a small gain as my cost is $1.29.


    (in millions)
    Revenue: $344.40 via my $350.00 est;
    Expenses: $196.00 via my $195.47 ($65.47+ $130) est;
    D&A $103.70 via my $73.00 est;
    Interest $57.1 via my $55.00 est;
    OT gain $68.80 via my $72.00 est;
    Shares 50.30 via my 50.25 est;


    Net Profit: -$12.40 via my $26.53 est.
    Income Tax -$1.20 via my ?


    Net Profit After Income Tax Provision: -$11.20 or -$0.22/share via my +$0.52 est.


    Net Profit including OT gain: $1.15/share via my $1.96 est.


    Of course D&A is a non-cash item and will not affect its free cash flow. But the sudden jump is another surprise to me.


    The company is still stick its whole year guidance: 2012 $1,225 - $1,300 revenue.


    That means, the average revenue for the next three quarters will be in $293.53 - $318.53 million range. If D&A, interest payment and expenses are deducted, earnings will all be negative.
    26 Apr 2012, 09:32 AM Reply Like
  • atrickpay
    , contributor
    Comments (504) | Send Message
    James, i find their 1.15 eps for the quarter boggling..if i employed some standard metrics..ie. x4 to get annual...that's 4.60 per year of earnings..and slap on a conservative 10x eps metric..gives a share price of 46$/share? wtf is with this stock..i DO recall that the EPS last quarter was just 0.11 last quarter..so i AM guessing it's just up hard this one because of way lower interest payments or something.


    And also I thot had thot they had a good cash balance..but their working capital is actually negative! Im wondering if theyll need to do a financing? i doubt it, i would expect their sales should help them have enuf cash to fund the operations (along with lessened interest outlays). I don't have a lot of experience imo in evaluating financials, but i have to say this is the most peculiar set of financials i've seen so far!
    26 Apr 2012, 11:02 AM Reply Like
  • jsIRA
    , contributor
    Comments (4430) | Send Message
    Author’s reply » $1.15 includes one time gain from debt buy back at discount. I will use my money in other high growth stocks. GNOM is one of them. It is quite similar to the early years of ILMN. I will write an article about it here and give my reasoning.
    26 Apr 2012, 11:29 AM Reply Like
  • pahrah
    , contributor
    Comments (279) | Send Message
    James, I know this is outdated but am wondering if you still keep up. DEXO has quite a short interest. I'm thinking of buying some shares as it pops up as a potential breakout candidate, a good entry point with chart indicating possible upside short term.
    13 Mar 2013, 03:52 AM Reply Like
  • jsIRA
    , contributor
    Comments (4430) | Send Message
    Author’s reply » DEXO - 2.33. Pulled back from 2.60 break out and had two year high.


    I already sold it at 2.10 after made 100%+ gain and have been waiting for it to return to low $1.00. But it did not.


    I need to dig out more information before saying anything. Chart is quite bullish.
    13 Mar 2013, 11:07 AM Reply Like
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