Ju Teng Interim Results

This result is largely inline with what I have in mind. I will highlight a few important figures. Profit margin before tax of 6.3%, up from 2.52% last period. ROE 4.59% up from 1.78%.  Leverage is 1.96 times, which is all right. If looking at the second half, if it can achieve full year ROE of 9%, that would be a price of $4 after minority interests. I will have to say goodbye to this company when it goes up to $4. But things might turn unexpectedly good, let’s have a look at what the management have to say.

Looking ahead to the second half of 2012, the Group will continue enhancing its gross
profit margin and revenue. The Group aims to achieve better product mix by expanding its
metal casing segment further. The expansion of metal casing production is expected to
enhance the Group’s overall gross profit and profitability. In addition, the Group will also
speed up the construction of the second phase of its production plant in Neijiang City,
which is expected to commence production later this year. By then, this factory will
command an annual production capacity of 9 million units and accommodate increasing
orders for mixed material casings combining plastic and metal, which will be beneficial to
the Group’s revenue growth.

In respect of operating costs, due to the closing down and/or relocation of many factories
overseas caused by sharp wage increases and intense labour shortages in previous years,
Chinese workers’ salary increase has slowed down and the labour shortage problem has
been alleviated this year. Moreover, the upward trend of Renminbi (“RMB”) exchange rate
has weakened recently as we witnessed a slight decline of RMB against U.S. dollars
(“USD”). Management believes that these developments can help ease the cost pressure
felt by the Group last year, which will in turn boost gross profit margin and revenue growth.

In respect of industry trends, management identifies three major factors beneficial to the
growth of notebook computer industry as well as Ju Teng for the second half of 2012. First
of all, Microsoft has already announced that Windows 8 operating system will be lauched
in October 2012. Equipped with enhanced interface and features including touch screen
commands and energy-saving designs most suitable for notebook computers and tablet
PCs, Windows 8 is expected to stimulate replacement demands in the market. Secondly, it
is likely that the price of Ultrabook will drop to a competitive level from the current
USD1,000 per set, thanks to Intel’s tremendous push for cost reduction of Ultrabook via
concerted efforts of its component suppliers. The pricing factor coupled with support of
Windows 8 operating system will strengthen Ultrabook’s appeal to consumers who are
willing to pay for its sleek casing and powerful features. Thirdly, Tablet PC’s development
will be boosted by the rollout of Windows 8. Last year, Apple iPad dominated the tablet
market while many computer brands failed in their attempts to gain satisfactory share in
this segment by selling comparable products. Nevertheless, the sales success of
Samsung Galaxy Tab, Amazon Kindle Fire and Google Nexus 7 highlighted the growth
potential of tablet market, which led many PC manufacturers to reshape their strategies in
preparation for the launch of tablet PCs running Windows 8 that is expected to help them
gain a larger market share. In response to these trends, Ju Teng will maintain its close
cooperation with clients and provide more notebook computer casing solutions, thereby
boosting the Group’s sales and sustainable growth.

I think the underlined bits are key. PC manufacturers don’t even know what they are doing with tablet PCs because Microsoft unexpectedly revealed their Windows RT Tablet and rumored to be priced at $199? Toshiba is getting out of this market, others might follow. The outspoken Acer CEO slammed against this heavily. Ju Teng is maintaining close cooperation with clients, because no one knows what is going to happen.

So ignoring exchange rate volatility, conservatively forecast revenue growth of 10% and profit margin before tax of 6% in 2H. 9% ROE is about right. Who knows, I am cashing out at $4, whoever wants to buy my shares can take the rest of the gains above $4.


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