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Investor CentralCheung Woh Technologies Ltd - Will HDD demand ever recover?
24/1/2013 - Cheung Woh Technologies (CWT) expects soft demand in the hard disk (HDD) industry to continue to cloud the outlook.
But the precision metal stamping components segment is expected to do well.
The company just announced earnings for Q3 FY13:
Revenue: -59.8% to S$14.2 mln
Profit: (0.3 mln) vs (4.7 mln)
Cash flow from operations: (S$4.2 mln) vs S$4.9 mln
The huge fall in group’s revenue is due to the exclusion of Tysan Precision (TP), which became an associate company since the beginning of the fiscal year.
On a proforma basis, revenue in fact increased 6.1% to S$14.2 mln while it made a profit of S$88,000, down 60.7% QoQ.
All thanks to the slackening demand in group’s hard disk and precision metal stamping businesses.
On the other hand, the re-rolling steel segment recorded an increase in sales to external customers.
Lim & Tan Research highlights that the company is trading at the lower end of its 5 year historical price-to-book range of 0.2 times -1.3 times.
It says the financial position of Cheung Woh Technology is also strong with net cash of S$7 mln, representing 13% of its market capitalisation.
Hence, the analyst is NEUTRAL on the stock with a target price of S$0.18.
Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.
1. Will HDD demand ever recover?
We all know that tablets are growing at the expense of PCs and notebook. Just take the MRT to see this for yourself.
Tablets use NAND flash memory.
And Solid state drives (SSDs) use NAND flash technology.
Even on a notebook, waiting time is cut down dramatically when SSD is used for storage instead of a HDD.
The price premium is narrowing.
More users would opt for a smaller capacity SDD (due to cost) and plug in an external HDD.
This, coupled with strong tablet growth, may make it difficult for HDD players to survive.
Therefore it makes us wonder whether the weakening demand in the HDD segment is temporary, or a big structural shift.
2. Is the cash balance enough to sustain the business?
The group burnt S$4.2 mln running its operations in Q3, almost half of its net cash balance.
Therefore that makes us wonder whether the rate of cash burn is sustainable.
We have sent these questions to the company to invite them for an on-camera interview, and/or seek their written response.
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