Namtai Electronics (NTE.NYSE) has managed to reinstall market confidence with a surprise return to profit in the third quarter following incredible difficulties over the last two years.
Revenue increased 58.3% year-on-year, or 53.4% quarter-on-quarter, to US$174.7 million, while net income improved by 68.9% year-on-year, or 137.1% quarter-on-quarter, to US$7.6 million. Namtai’s three major business segments, consumer electronics and communication products, LCD products and component assembly, posted year-on-year revenue gains of 80%, 23% and 60%, respectively.
Namtai’s board responded by saying it would resume the payment of quarterly dividends in 2011. Expected dividend each quarter is set to be US$0.05 per share.
Namtai is a manufacturing and design services provider to a select group of top global original equipment manufacturers (OEM) in the telecom, consumer electronics, medical and automotive sectors. The global economic downturn hit the company hard, and it posted dramatic declines in sales and net income for 2008 and 2009.
But on inspecting the stock in August, SinoSage found that Namtai had great upward potential, largely thanks to its strong balance sheet – a cash position of US$203 million and no debt.
We concluded the stock was undervalued because investors were not fully taking into account two issues: first, Namtai’s strong future earnings potential, given that its position in the high-end consumer electronics market; and second, the likelihood that the company would address the slow start at its plant in Wuxi and the delay in gaining control of a plot of land in Shenzhen earmarked for development.
Namtai’s share price has since jumped 28.4% from US$4.69 per share to US$6.02. SinoSage believes the company will further improve its sales revenues and generate better returns as the global economy gradually recovers.
Even though price-to-book ratio has increased from 0.64 to 0.86, the strong current assets and debt absence makes this more an undervalued stock instead of a risky one, and there is still much growth potential.