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. 



Blogger Kyith said...

Hi Mr Market, i been following your blog for some time and this is a rare occasion that i see you blog.

I also held positive views on GTC with recent adds,my take is ex capital reduction the share price is 6.5 cents. the FCF hovers around 10 mil USD or 5 mil USD. At a enterprise value of 34 mil ex capital reduction it looks cheap.

My worst fear is that i do not undrstand the semi conductor cycle that well, that their cycle have entirely change with the smartphone era

10:32 PM  
Blogger Mr Market said...

Kyith, yes, the semiconductor / tech cycle is very volatile. It is not in keeping with a "buy and hold" over an extended period of time strategy.

Whilst we would much prefer a stake in a business that would continuously compound over ten or more years, GTC looks very cheap from several measures.

In light of the above, the following is probably warranted:
1) not to do a DCF over ten years to arrive at a target price;
2) close watch of GTC's quarterly results;
3) review of TSMC's numbers too.

I look forward to exchanging ideas with you.

9:29 AM  

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