After the USA sell-off how do 2 higher tech shares compare.
After USA's high tech NASDAQ sell off in mid April, we still note that this Thai high tech stock, is still much more modestly valued as compared to it's counterpart in sold off USA stocks markets.
Thaistocks.com searches for hidden "jewels" on the Stock Exchange of Thailand. Many promising manufacturing companies receive little investor attention because of their smaller size or unglamorous products. These are, according to Paul Renaud, "a rational value investors' ultimate picks."
So how do these companies compare to their peers in the West? This month we compare KCE Electronics Public Company Limited (SET: KCE) with a similar U.S. stock, Merix Corporation (NASDAQ: MERX).
KCE Electronics. KCE has been Thaistocks.com’s preferred electronics stock since late last year. It has appreciated close to 50% since then, but Paul Renaud still recommends it. Unlike other Thai electronics companies which are mostly assemblers, KCE is a printed circuit board manufacturer that should continue to generate a high profit margin. Paul disagrees with the SET marketplace that KCE should have a discount p/e compared to most other Thai electronic shares. His latest analysis and comments on KCE can be seen by searching "KCE" in the search function. Merix. MERX carries one "Buy", four "Buy/Hold", and one "Hold" investment ratings from U.S. regional brokerage firms. According to its web site (www.merix.com), MERX is "a leading manufacturer of technologically advanced electronic interconnect solutions for use in sophisticated electronic equipment. Our principal products are complex, multilayer printed circuit boards, which are the platforms used to interconnect microprocessors, integrated circuits and other components that are essential to the operation of electronic products and systems. We focus on providing our solutions to manufacturers of technologically advanced electronic products within selected high growth segments of the electronics industry, including communications, computing, and test and measurement."
MERX’s customer list is a "who’s who" of international electronics manufacturers and sub-assemblers, including Cisco Systems, Agilent Technologies, Sonus Networks, Celestica, Hewlett-Packard, Flextronics, Intel, Jabil Circuit, Lucent Technologies, Motorola, Solectron, and many others.
MANY SIMILARITIES. Though located half a world away, there are many similarities between these companies:
- Each manufactures multi-layered printed circuit boards
- Each has a strong presence as a supplier to international electronics manufacturers
- Each has an aggressive, internationally oriented growth strategy.
- Each of these stocks is recovering from an industry-wide downdraft
THE COMPARISON. Here are the key investment-related stats:
MERX |
KCE |
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SIZE |
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1999 Sales (millions) |
$ 130 |
Baht 3,017 |
|
Market Capitalization (millions) |
$ 135 |
Baht 3,325 |
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ANALYST ESTIMATES |
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Current Year Est. Earnings per Share |
0.78 |
18.75 |
|
Next Year Est. Earnings per Share |
0.94 |
22.00 |
Year over Year Estimated Growth |
20.5% |
17.3% |
|
Long term growth rate |
20.0% |
25.0% |
|
MARKET PRICING |
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Price/Book Value |
2.53 |
3.0 |
|
Price/Sales |
0.97 |
1.1 |
|
Price/Estimated Current Earnings |
26.9 |
7.1 |
|
Market P/E |
39 |
7.5 |
Discount to Market P/E |
31% |
5% |
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FINANCIAL HEALTH |
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Recent Working Capital Ratio |
1.7 |
1.2 |
|
Recent Long Term Debt/Equity Ratio |
0.7 |
1.7 |
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RETURN TO SHAREHOLDERS |
||
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Profit Margin |
3.2% |
13.8% |
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Asset Turnover |
1.28 |
1.00 |
|
Financial Leverage |
2.18 |
2.69 |
Estimated 1999 Return on Equity |
9.0% |
37.2% |
|
Estimated Current Year Dividend Yield |
0.0% |
3.8% |
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TRADING |
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Average No. Shares Traded Each Day |
100,000 |
260,000 |
|
Dollar Value of Daily Volume |
$ 2,000,000 |
$ 897,436 |
|
AVERAGE ANALYST RATING |
Buy/Hold |
Buy |
Long Term Growth. Analysts are looking for strong growth from each of these companies, although Thaistocks.com projects KCE will be the stronger performer. Earnings growth is one of the most important determinants of price multiples. Market Pricing. Since each of these companies competes in the same international marketplace, we would expect similarities in their stock price. Indeed, price/book value of equity and price/sales are similar. MERX p/e is a 30% discount to the S&P 500, while KCE trades at a 5% discount to the SET. Yet, KCE has a 7 p/e ratio, while MERX is 27. Financial Condition. Both companies appear financially healthy, though MERX has stronger working capital and less debt relative to equity than KCE. Return to Shareholders. The similarities between KCE and MERX do not extend to Return on Equity, which is one of the best barometers of financial performance. For the current year, KCE’s ROE is expected to be nearly four times MERX. Clearly, KCE is posting much better overall performance. Examining ROE’s components shows what’s driving the numbers (ROE = Profit Margin times Asset Turnover times Financial Leverage). KCE’s profit margin is far greater than MERX. KCE is also generating nearly 25% more sales relative to its asset base. KCE is making much more efficient use of its assets. Additionally, KCE’s financial leverage is higher than MERX. This indicates that KCE is taking a more aggressive approach to growth. It also may reflect that debt financing is relatively more attractive in Thailand because of very low stock price multiples. KCE paid no dividend last year, though Thaistocks.com anticipates a 5 baht dividend for this year – or a 4% dividend yield on current prices.
Liquidity. Daily shares traded are about 100,000 for MERX and 260,000 for KCE. Turnover in dollars is running at $2,000,000 for MERX and $900,000 for KCE. MERX has more liquidity, but trading in KCE is sufficiently active that an individual investor should be able to easily enter and exit the market. Best Regards, Robert Thayer, CFA.
THANKS to Thaistocks.com and the SET Website for information on KCE. Marketguide.com, EdgarOnLine, and I/B/E/S supplied information on Merix Corporation. I would suggest any weakness in KCE shares next week due to the NASDAQ and USA markets dramatic fall is a buying opportunity. Strong support should be around 100 baht per share but I doubt it will get down there. Best Regards to all our subscribers,
Paul A. Renaud.
