Willas-Array Electronics

In the beginning of the year, Willas-Array was looking good feeding on China's demand for electronic goods.

However, just barely a year on, the company seems to have fallen out of favor with analysts and investors.

Despite managing to 'keep it together' in its FY2008 earnings and optimistic outlook, OCBC Investments is not taking a chance on this electronics company. The research house downgraded the stock to on September 30 to a SELL from HOLD. It also slashed its fair value in half to S$0.09 as it expects margins to contract even further as the technology industry enters a slowdown. It had already hinted of a deteriorating industry earlier in the month.

In OCBC Investment's Technology Sector report dated September 5, net profits for all eight companies that released earnings under their coverage would have either come in flat or below estimates if not for tax benefits, lower tax rates and other non-operating or exceptional items.

Even a recent report by iSuppli echoes hard times for companies linked to the semiconductor industry. The report says that the industry is seeing shrinking profit margins.

And with the uncertainty in the global economy, consumers may buy less consumer electronics, hurting the sales of the industry.

While SIAS Research hasn't given a direct call for investors to disembark, it is saying now is the time to reconsider the stock. On July 2, SIAS rated Willas-Array FULLY VALUED with a target price of S$0.175. Three months on, the stock is at S$0.13.

What it liked about Willas-Array was that it had reflected revenue growth over all its segments and improved margins in FY2008, but SIAS Research is of the view that the business won't be able to keep it up for long as weaker orders and inflation pose an immediate threat to the business.

And it doesn't help that Willas-Array is strapped for cash.

Willas-Array's FY2008 earnings could be the last rays of sunlight before night sets in. Its revenue and net profit were both up by about 16% to HK$2.55 billion and HK$46.7 million respectively thanks to higher sales from China. The business also maintained its dividend payout of 7 HK cents.

The group burned HK$114.4 million in cash from operations compared to HK$54.4 million generated because it bought more stock for the expansion into China and had factored in higher trade receivables and trade payables because of more sales made.

The business may be keeping a close eye on inventory levels and tightening its credit to customers to combat the slowdown.

But the fact is, the company is already facing order delays. And because of its already weak cash position, its dependence on bank borrowings is now even greater in the midst of the slowdown.

Despite the company's growing earnings over the past years, it has been burning cash from operations and has been in a negative free cash flow position since 2004 with the exception of 2007.

Analysts surveyed by Reuters have on average a SELL call on the stock with a target price of S$0.09.

Please seek professional advice before making any investment decisions.

More

Water, water (projects) everywhere
It would seem these days that not a week passes by without news of major staff layoffs around the world, especially among global financial institutions and US companies.

Global investors see equities as undervalued
Investors are waiting for the right conditions to return to equity markets amid the most pessimistic outlook yet recorded, according to Merrill Lynch's latest survey of fund managers.

Buy American. I Am by Warren Buffett
I've been buying American stocks. This is my personal account I'm talking about, in which I previously owned nothing but United States government bonds.

Sarasin finds silver lining in financial storm
Investors are advised to take a fresh look at global markets and seek opportunities despite the financial crisis over the past four weeks...

Threadneedle offers funds with short-sell capabilities
The UK-based Threadneedle group will soon be offering investors in Singapore mutual funds with short-sell capabilities known as 130/30 funds.

Investors eye the Fear Index
Fear is running high on Wall Street. Just look at the Fear Index. With all those stomach-churning free falls and sharp reversals in the stock market recently...

Q&A with Lead fund manager at Midas Capital International
Given the bearish market conditions, what would be your advice for investors in their approach towards their asset allocation strategies?

Q&A with Saxo Capital Markets, Asia Pacific Strategist
Given the bearish market conditions, what would be your advice for investors in their approach towards their asset allocation strategies?

Q&A with Chief Investment Officer, Deutsche Bank Private Wealth Management
Some investment houses are of the view that emerging markets such as Asia could still see downside of 20% to 25%.

Q&A – Merrill Lynch, Chief Investment Strategist
Some investment houses are of the view that emerging markets such as Asia could still see downside of 20% to 25%.

Risks in switching completely to cash
It's a question we've all asked in our darker moments of late: Why not just put all of our investments in cash, 100 percent, just for a little while, until things calm down?

Stay defensive till recession is past its worst
With the Singapore economy expected to tip over into a technical recession according to the Citigroup's Singapore research team, investors are advised to stay...

Barclays: Asian growth fundamentals intact despite US woes
Asian stock markets may see a further correction of between 22% to 25% in the coming months with markets like South Korea, India and Indonesia being the most vulnerable...

How the credit crisis came about
A mountain of debt with a foundation of shaky mortgages began to crumble in the summer of 2007. A little over a year later, Wall Street was in the grip of the biggest financial crisis since the Great Depression.

SATS
SATS's stock is done with taking a beating. Investors are buying into this stock, making it the top gainer in the Russell Singapore Value Index last week.

Westech Electronics
As they say, when it rains, it pours.

Willas-Array Electronics
In the beginning of the year, Willas-Array was looking good feeding on China's demand for electronic goods.

Stock Pick
China XLX Fertiliser & China Farm Equipment: Buy (DMG, 21 Oct), MAP Technology: Neutral (DMG, 20 Oct), Ascendas REIT: Buy (DMG, 20 Oct), MobileOne (M1) : Neutral (DMG, 20 Oct), MobileOne (M1): Buy (OCBC Research, 20 Oct)