Disclaimer:

The blog entries do not represent a recommendation to buy or sell. Please consult your financial experts before making any decisions.

Sunday, March 2, 2014

Datas out, Inari in

The past two weeks have been a roller coaster ride for Datasonic. First came the UMA (Unusual Market Activity) query from Bursa which kind of halted the price rise of Datasonic for two days. Then it continued the upwards trajectory afterwards due to the persistent rumour that the Malaysian government will introduce a compulsory change to the new identity card that is produced by Datasonic. The new identity card is said to have higher security features and thus harder to forge. Datasonic closed at RM3.61 on 28th February 2014. Anyway, the 4Q result of Datasonic is finally announced:

That is an impressive profit growth and fully justify the price movement of Datasonic in the past 8 months. The future prospect is good as Datasonic might win more IC and passport contracts from the government but I have decided to sell Datasonic because

  1. I think this company overpriced right now as the share is trading at RM 3.61 which represents PE of 29.7. This is quite bubbly for me.
  2. Some big funds are quietly selling their shares while the "ikan bilis" retail investors are slowly gobbling up the share. One could roughly gauge the retail interest by reading the amount of comments here and the increasing coverage of Datasonic on the Star newspaper.
  3. An profit margin of 111% over 3 months is more than satisfactory. This might be only a once in a lifetime opportunity to have such gains. 
The earnings from this stock is enough to cover the 10% return for two consecutive years=). I might have exited this stock too early as there is an announcement of another 1-for-1 bonus issue but investors might get weary of the consistent share-split and bonus issue. Only time will tell. 

*********************************************************************************

After the adventure of Datasonic, I have bought Inari. Inari is simply a E&E subcon company for major electronic companies. It's clients are Avago and Agilent. Inari has previously only produced radio frequency (RF) for Avago, it recently has branched out to fiber optics transceiver (also for Avago) and precision test and measurement products (for Agilent).

The Avago radio frequency (RF) chips are incorporated into all major smartphone and tablets. This chip which utilizes the film bulk acoustic resonator (FBAR) micor-electro mechanical system filter, can improve filtering and reduce the interference. In LTE-world, this is essential to filter out the unwanted frequency as different country uses different frequencies. In layman's term, it enhances the call quality as well as the battery life of the device. With the introduction of LTE and increasingly availability of LTE-devices, the demand for RF-chip should grow decently. This chip contributed 99% to the FY2012 revenue of Inari. Thus Inari should be a good proxy to the smartphone and tablet market. The manufacturing agreement with Avago has recently been extended for a further 3 years till 30th April 2016.

The fiber optics transceiver should contribute more from 2015 onwards due to the ever increasing data consumption growth and the company will be perfectly placed to benefit from the demand for more fiber optics equipments.

The precision test and measurement products has just broke even and will slowly contribute to the bottomline of Inari Amertron. 

The recently acquired Amertron can easily double the revenue for FY2014 but the profit margin of Amertron is very low at 3% compared to ca. 20% of Inari. I particularly like the effort the management put in to improve the margin of Amertron's operation and the scale of economies that the merger of Inari and Amertron will bring. The management salaries are also not exorbitant at about 5% of net profit for FY2013. See the impressive growth:



So it is a buy! The Ah bu fund looks like this now after the sale of Datasonic and the entrance of Inari:
Financial assets at 28.02.2014


Name
Purchase Date
Purchase Price
Current Price
Unit
Current Value
P/L ex Dividend (%)
Dividend
P/L inc Dividend (%)

Cash
Hle-Broking


37443,36






Stocks
OCK
27.12.13
0,78
0,775
5000
3875
-1,1

-1,1

Inari
24.02.14
1,93
1,88
5000
9400
-2,6

-2,6

Sunreit
04.10.13
1,40
1,34
5000
6700
-4,1
89,25
-2,8

Cypark
22.10.13
2,17
2,29
3000
6870
5,5

5,5

Total Stock
26845,00
41,8
%
Total cash
37443,36
58,2
%
Total
64288,36
Current profit
14288,36
28,6
%
Total dividend
374,39

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