Saturday, May 09, 2015

Testing Newer Highs

MOS wishes to highlight SGX listed  micro-cap Global Testing Corporation (GTC).

GTC provides testing services, such as wafer sorting and final testing to the semiconductor industry. They focus on logic and mixed signal semiconductors used in consumer electronics and communication devices. Its major customer TSMC continues to do well. As articulated in its 1Q15 results guidance, GTC also remains bullish about its prospects. The stock has run up to $0.14 but we continue to see a lot of value in the name because thesis has just been confirmed at the recent AGM.

Measures indicating management's intent include:
  • continuous share buybacks from which has reduced the shares issued quantum by a significant 25% from 2008 to 1Q2015.
  • capital reduction of $0.075 which will now take place.
  • given accumulated losses have been removed, there is finally affirmation to resume dividend payments in this FY15.
As evident from the results in the last two years, the intensive capex cycle of GTC is over and we are poised to reap the fruits from here. Reviewing the trend in the past years, we anticipate free cash flow per share of at least $0.02 - 0.025 cents in this and subsequent FY. Depending on their pace of anticipated share buybacks, your investment at these levels would be backed entirely by a full cash pile after about 2 - 3 years.

Note that a 20:1 share consolidation has been proposed. So investors may acquire in even lots for ease of subsequent transactions. 


Seeking a White Knight

MOS is disappointed by the recent developments at Sound Global. Our anticipated re-rating thesis has not played out. Instead auditor Deloitte has found a RMB 2 bil shortfall in the cash balance at its bank accounts at the end of last year compared to that recorded in its books.

The stock remains suspended on HKEx since 16 March. Instead of stalling or using the "usual" delay tactics, we are marginally encouraged that a professional corporate investigation firm has been tasked to review and issue a report by late May. There is further expectation that its results will be published in late June after the foregoing work is completed.

Founder Wen Yibo is cashed up to a tune of at least a billion dollars following his 30% stake sale in sister unit Beijing Sound Environmental to Tsinghua Holdings. So if the current issues at Sound Global are not of his doing, he could step in as a white knight to rescue the unit when trading resumes.