Tuesday, February 15, 2011

Longcheer SGX

Longcheer is a China based mobile handset designer and manufacturer.
It is seeing odd volumes and share price has fallen precipitously from S$ 0.70+ to currently S$0.305.
Some facts I am seeing gives me negative vibes.
  1. Tao Qiang, Non exec director and co founder of firm has his shares forced sold on market by a financial institution. Does this sound familiar or what? 
  2. CEO sold shares too
  3. Over half of sales are in India and is expected to see bad sales since the firm's key product (low to mid end feature phone) is being taken over by the higher end smart phones. 
  4. China's massive inflation --> Wages too 
  5. Theres a put option liability with strategic investors. So its a pseudo private placement with conditional hurdles which Longcheer did not fulfill. Im just wondering why not a plain vanilla private placement?
I have not taken a closer look but at first glance not too positive about this firm. Will dig deeper and find out more. 

Disclaimer: The author does not hold a position in this counter yet.


Mervyn Teo (MT&Co) said...

A friend of mine (An India regular patron) highlighted the fact that few in India uses high-end smartphones, only in the cities and even then only the mid-upper class. Longcheer is dominant in the feature phone segment. (Imagine a smaller Nokia 3310 with some basic MMS, 3G functions)

2Q10 had a 40% rise in shipment volume, 30% dip in ASP and a 3% rise in sales. Gross margin halved from 10.2 to 4.9%.

Upon more reading, it seems that there was a massive ASP cut to clear inventory. In that sense, high inventories and the inability to absorb the excess supply led to the ASP cut. substitution of feature phones by smart phones will hence be an additional pressure but not the main negative.

As of writing, Tao Qiang sold down again from total holdings of 12.92 to 12.78% after last week decrease to a married deal. Stock at S$0.27 and market cap of S$107mm.

I guess if the market is able to "see" whats going on, i would not be surprised to see a S$0.10 Longcheer in the next few months. The only saving factor is probably the entrance into smartphone R&D.

Anonymous said...

Don't be so pesimistic, Longcheer is great buy for such low prices and it has nice future too! Also don't forget there is also smaller recession in India and China.

MTH Investments said...

Despite the impending troubles at each nation, I remain an optimist in their potential to deliver. The firm however, dos not enjoy much of that optimism as it suffers weakness not only on the financial front but also the political, socio demands and most importantly corporate governance issues which to me is paramount.


The stock looks decent..

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