Exited Nam Tai Position

I’ve noticed a few web searches hitting my site for Nam Tai Electronics (NTE) so here’s a heads-up that I sold NTE near the beginning of January @ $6.23.  The portfolio spreadsheet will be updated accordingly at the end of the month.

Here’s my previously unpublished notes on NTE’s last earnings release (when it was selling under $5). It was originally intended to be a post updating all 3 of my tech positions (NTE, AMAT, INTC) but got sidetracked when I spent nearly a week researching AMAT and realized that I still wasn’t comfortable with my grasp on their business (that should give you some hint of my stance toward AMAT).

Nam Tai Electronics (NTE) has been making news lately and pretty much all of it is bad (US$ unless noted):

  • The financial-cum-economic crisis has blown holes through all 3 of their business segments.  Consumer electronics (CECP) and telecom components (TCA) revenue dropped 20%+ y/y.  Net income performance was worse than that, with TCA and LCDP going into net losses.
  • The company had negative operating cash flow in Q3, burning $3M as working capital activity spiked.  While 2008 YTD numbers are holding up, I fully expect the pain to be heavily backloaded into Q4.
  • They have expended only $13.5M in capex thus far, compared to projected $92M capex including the Wuxi factory expenditure.  The company implied that the 2nd and 3rd stages of the Wuxi plant will be suspended pending the economic fallout.
  • NTE finished Q3 with $5.59 cash per share ($251M total), tangible book value of $6.98 per share and no net debt.
  • The CEO abruptly resigned due to personal family reasons.
  • Nam Tai announced they would no longer hold quarterly earnings conference calls.  Less transparency isn’t usually positive.
  • Other than the update on the Wuxi expansion, the company provided no further outlook going forward as the global slowdown hampers visibility.  Suffice it to say things are bad and look to get worse.

While in hindsight I was much too early on NTE and perhaps did not properly weigh its involvement in such a discretionary segment of the economy, at current prices under $5 per share, NTE is selling below net cash so the business, weakened as it is, comes for free.  The company also gave preliminary indications of maintaining its $0.22 quarterly dividend for Jan 2009 payout but I expect it to be cut sometime in 2009.  Nevertheless, with the factory expansion put on hold and NTE selling below both tangible book and net cash, I am holding at this time despite the dubious business prospects in the intermediate term.

More on this topic (What's this?)
Nam Tai (NTE): Cash-rich trade
Read more on Nam Tai Electronics at Wikinvest

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