SYNNEX, another high quality growth story.
September 15 2011.
SYNNEX (THAILAND) PUBLIC COMPANY LIMITED
Their web site is: www.synnex.co.th
You can see the SET financial highlights at this link:
http://www.set.or.th/set/companyhighlight.do?symbol=SYNEX&language=en&country=US
Note the company’s name is SYNNEX but their stock symbol is SYNEX.
SYNEX (5.20) Is my latest related choice in the fast moving Thai retail sector. I have here argued for some time that Thai domestic retail choices are to be favored both because developed economies are and remain lame (to say the least) and at the same time the Thai consumer has woken up more then ever as we witness here and the numbers confirm. Consumer choices here have outperformed the index for some time even while so called ETF funds hardly own any of them.
See my just previous article where I explain why developing economies which reach near 5000 $ a year average income per person, often then see a fast advance in its internal growing consumer increased spending habits. This is clearly happening with Thailand as in addition the new elected government is determined to fuel this already buoyant sector. Also, this choice pick is now, as well removed as possible, from exports to developed countries.
I have explained for some months why I now favor higher domestic quality growth stock stories here rather then just tamed high dividend players. SYNNEX is another prime choice here at current prices. The stock was as high as 6.65 in early August.
SYNNEX described itself as a distributer of IT products and smartphones, but its allot more. This 23 year old company employs 743 workers through 24 branches in Bangkok and over 5000 dealers throughout the country, they also employ 44 engineers. Nomura brought them public at 2.90 Baht per share in year 2008 or at the height of the North Atlantic induced financial crisis.
SYNNEX imports a very broad variety of IT products, software and even the broad range of digital cameras (Cannon), altogether they represent some 53 global brands. Their products surely are the “whos’ who” of the global brands on this…just about everything except the Apple brand. (INTEL, DELL, CANNON, HP, LG, EPSON, FUJI-XEROX, PHILPS, BENQ, SEAGATE, WESTERN DIGITAL, SEAGATE,. Selling directly to some local large retailers like Power Buy, MACRO, BIG C, LOTUS, PANTHIP, IT MALLS. (This is not a comprehensive list, just a few examples.)
The company has 688 million shares outstanding with a PAR value of 1 Baht. 75% of the shares outstanding are owned by T.K.S. (39.35%) and SYNNEX Taiwan (35.65%) one of the 3 global biggest sales of computer and high technology, this company gave them the know how on the Wharehouse and logistics management. These are 2 very synergistically endowed co-owners of SYNNEX. Hence only around 25% of the shares outstanding are free floating. The company also owns 11 million of their own shares as treasury stock, where their average price is only 1.1 Baht per share. This represents at current market prices an unrealized gain of 45 million Baht. The company stated to me that it must release these shares into the market by mid next year at the latest due to SET regulation. This will increase the free float and book a nice profit as well!
I upload for us here their full investor hand-out in electronic form. Its called "SYNEX Presentation_11", so look for that or e-mail me and I will send it on. Its present already at our Dowload link, or here:
/index.php?module=Downloads&func=sublevel&cid=1&start=0
Just scroll down a bit and look for this company.
What needs to be understood is that this company is far, far more then a “box pusher”. It is part of and has a highly sophisticated distribution and logistics center along with state-of the-art roboted automated inventory management systems. Here they are absolutely tops.
Smartphones is a very fast growing segment of the market as it revolutionizes phones into a total communication/office tool in ones’ hand. Fare more then anything before and 3 G is finally working in most/many parts of Thailand. Android’s smartphone is set to gain market share from currently 38% to 44% by 2015. So not only is this explosive growth in absolute numbers but in fact Android smart phones are growing even faster.
SYNNEX is one of the top 3 leaders in this business here. The company ranks number 1 or number 2, all depending how you measure. Last 3 years sales have grown on average of 14.1% per year vs. the ICT business here in Thailand, which grew 6.6%. This year sales are expected to grow over 25% for SYNNEX and ICT business is now expected to expand 11.7% this year. This years’ very high growth is coming from communication (63%) and the second highest mkt. share in computer hardware and software is 12%. Computer service is 9.6%. I think this will continue or even increase. So there may be gloom in the world major economies but not here.
Here is the key: Management does an extremely good job of managing the ratio’s, credit outstanding and margins. It makes a big difference, as this business has relatively low 5-6% net profit margin. SYNNEX’s management is top quality and is extremely advanced! I was impressed. Looking at all their number nearly made me nauseous but its clear these guys know what they are doing. See the handout. (Example a few years ago they initiated the Automatic Storage & retrieval system, a top of the line state of the art inventory management system which I was offered to tour next time).
The company showed an earnings increase of 60% for the first 6 months vs. last years same 6 months. The return on equity (ROE) soared to 28.2% vs. 19.9% last year and up from 16.25% in calendar 2009. Similar with net profit margins which have increased from 1.5% in 2009 to 1.73% last year to 2.19% so far this year (half year 2011). The company has a D/E ratio of 2.50. I will check into their long term debt more and post after this article.
With guidance I can see this company showing 20 Billion in revenues for this year and earnings 0.65 Baht, per share. The stock is so trading at a 2011 calendar p/e of only 8 times. Again, this company has allot going for it, not the least being favorable impact of new product launches like smartphones and tablets -where Thailand has still very low on penetration rates. The 3 Quarter is traditionally their high season and they do not see any slowdown arising from EU/USA troubles. Any increase in minimum wages here and/or decrease in gas prices will result in a rise in purchasing power which translates well for their products.
While smartphones and tablets are the pure growth drivers for some years to come, cloud computing, smart software and hybrid hard/flash memory drives are other example products coming on strong. Again, Thailand has a long way to grow on this because the penetration rate is still low and the demographics so favorable. Average job incoming per day remains at a record 1021 as of July 2011. Their service inventory history has continuously decreased from 102 in July of 2007 to only 44.5 in July of 2011. Inventories are not a risk as its their core line of duty.
"Synnex - i absolutely love this story, they are the company that essentially provides the IT gadgets to every retail store in Thailand, they've expanded their warehouse and logistics capacity 2 years ago, and have the ability to ramp up their volumes by ~2.5x from today." A smaller cap experienced analyst here which said this to me when I asked him what he thought of this company.
We interviewed some pro’s here in retail stores, just as I too bought a smart phone (yes, Android as in Phuket 3 G works very well, but in Bangkok I did experience some dead zones?). The key message from them was this company delivers product extremely fasts, like in hours of time anywhere in the country of time, not days. They are also very good in taking back/repairing/guarantee faulty products. I think SYNNEX represents a segment of the Thai culture which does very well at that.
Risk factors. --- If the Thai domestic economy tanks it will effect, as its all domestic sales. While their credit exposure to clients is very well managed and monitored (through SCB bank system) this would have to be monitored if the economy drops off.
--Currency fluctuations as they order in US $ , so any Baht strength helps them vs. the US$ and visa versa. I do not see how the Baht could have significant and prolonged weakness vs. US$.
SYNNEX fits well with my domestic vibrancy thesis and after visiting them for a couple of hours in person, I am excited and so would want to include in my Thai stock model portfolio!
Best Regards,
Paul A. Renaud.
PS. Here is what a member stated regarding their long term debt:
" Based on traditional D/E ratio calculation using the capital structure to finance assets (total liabilities/total shareholder equities), Synex D/E ratio is 1.66 however I usually look only at what is really debts, I would state it at 0.87 based on short and long term loans, lease and benefits due to employees, basically removing normal operation liabilities (e.g. A/P, provisions...).
Current D/E ratio (June 30)
"Looking at the latest financial statement (June 30), the D/E ratio (X) is 2.50 times, major increase in short-term loans and A/P. I would personally remove the A/P and state 1.28 times. They do have very little long term loans which is good. I don't think their D/E ratio is of any major concern right now. "
