After Syntax-Brillian (BRLC) closed up almost 26% to $4.99 on Friday, October 5th with no news, it left many investors scratching their heads. There were many baseless rumors being thrown out on various internet financial message boards and financial blogs as reasons for the rise. Some were claiming a buy out was coming, a new financing deal, Best Buy (BBI) was adding Syntax-Brillian's Olevia televisions, or it was insider trading on some very positive news unknown to the public yet. However, the rise appears more and more like the work of our old friend, irrational exuberance.
Last Friday was China Digital TV Holding's (STV) IPO. The stock opened at $37.50 and closed at $28, a pretty hefty rise from its initial IPO price of $16. China Digital TV Holding's IPO also drew investors towards other stocks that operate in or has exposure to China's television market. Asia Satellite Telecommunications Holdings (SAT) was one them. It ended the session on Friday up over 23% with no news.
Syntax-Brillian appears to be another of the beneficiaries from the temporary hype for stocks that have any relation to the Chinese television market created by China Digital TV Holding's IPO. Syntax-Brillian sells its Olevia brand of LCD televisions and LCOS televisions in China with around 5% market share. However due to the standard 120 day payment terms in China along with Syntax-Brillian being unable to factor their receivables from China with their current structure, the company is deciding to reduce their exposure in China and focus on North America in the coming quarters. Even though margins are better in China and there is explosive growth there for LCD televisions, the company has to sell less televisions in China because the current payment configuration causes problems for their cash flow.
Irrational exuberance probably needed some help from day traders and short covering but in the end, it appears to have helped caused the 26% rise in Syntax-Brillian and the rise for other stocks related to televisions in China. The one day irrational exuberance over Asia Satellite Telecommunications Holdings and Syntax-Brillian seemed to be subsiding as investors are coming back to their senses. Some figured out the highly competitive LCD television market Syntax-Brillian operates in, how the company isn't as major a play in the China's TV market as they thought, and also realized that it is not comparable to China Digital TV Holding. Quite a few investors were taking profits from the one day spectacle as Syntax-Brillian closed down 7% to $4.64 on October 8, 2007 while Asia Satellite Telecommunications Holdings was down 9.66% to $23.48 .
Disclosure: Author has a short position in BRLC