GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

Ju Teng International: An HK-Listed Taiwanese Windows 8 Proxy

November 06, 2012 | About:
Ju Teng International Holdings Limited (3336.HK) was established in 2000 by Li-Yen Cheng, Li-Yu Cheng and Tsai-Chin Horng. It engages in the manufacturing and selling of notebook and computer casings. It also manufactures and designs casings for television, hand-held products, and customized products. The company provides its clients with professional consultation and verification on designs, and manufactures its all the way through mass production. It provides plastic injection, metal stamping and surface coating technologies. Ju Teng International Holdings Ltd has a leading 30% market share in the global notebook casing market and was listed on the Hong Kong Main Board in 2005.

The Windows 8 Connection

The new Windows 8 OS will help PC Brands to break into the Tablet market by its touch-screen focus and mobile applications and drive new growth demand for Ju Teng in the tablet casing market.

Is It Cheap?

- Trading at 0.75x P/NTA, a 25% discount to its 5 year average P/NTA of 0.99

- ROE (trailing twelve months) was 8.3% and ROE (five-year average) was 14.4%

- Dividend yield 2.5%

- Book Value Growth (five years) 22.2%

Is It Safe?

- Total Gross Debt to Equity Ratio was 60.1%, net gearing 50.1%.

- Wafer thin margins susceptible to cost margins

Ju Teng's Net Profit Margin (TTM) of 4.39% and Net Profit Margin - 5 Yr. Avg of 6.97% are at risk if RMB appreciates and labour costs increase.

- Slowdown in global notebook demand

Given that nearly 100% of Ju Teng's current sales are generated from notebook casings, any slowdown in global notebook demand will hit Ju Teng severely.

- Success/Failure of Windows 8

Sales of Windows 8 Tablet devices will have a direct impact on whether Ju Teng will be able to make up for lost notebook sales in the Windows 8 Tablet casing market

Is It Quality?

- No. 1 position in the notebook casing globally

Ju Teng counts the top tier PC Brands among its customers gand has a certain level of bargaining power over customers as the casing for different customers are highly specific and vary from model to model.

- High entry barriers

Material know-how & surface treatment technology, strong relationships with Taiwanese notebook OEM and large capital investment in CNC will put Ju Teng in a strong position against potential entrants.

- Ultrabook's thinner designs play to Ju Teng's strengths

Ju Teng's strengths in Material know-how & surface treatment technology puts it in a better position to capitalize on the higher design requirements for ultrabooks.

- Material Diversification Strategy

Ju Teng invests in in multiple materials rather than putting all the resources in one single material. Casing

could become a differentiating form factor for Ultrabook makers and Ju Teng could benefit from Notebook OEMs mixing and matching different combinations of casing materials to separate themselves from peers.

In Closing

Valuations are fair and uncompelling now, given the strong share price outperformance since June 2012.

Future share price upside is highly dependent on the success of Windows 8 Tablets and ultrabooks. There is an added unknown with Microsoft directly competing with PC brands with the Windows Tablet.



Disclosure: Not Vested


About the author:

Mark Lin
Mark is a private value investor and runs the Cheapskate Investing website which borrows from the wisdom of value investing giants, using a systematic quantitative screening approach to filter the global stock markets for cheap cigar-butts and wide-moat compounders. He is also a regular contributor to various value investing communities.

Visit Mark Lin's Website


Rating: 5.0/5 (3 votes)

Comments

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK