Over the past week or so I’ve been seeing a new ad for Peter Schiff’s services with quite a bit of regularity — if you don’t know Schiff, he’s one of the several advisers who was warning about the current credit crunch a couple years ago, and he’s dining out on that prescience now. He runs Euro Pacific Capital, which I think mostly does managed accounts — so what he wants from you is not your subscription money, but he wants one of his salesman to talk to you on the phone (and, one imagines, convince you to open an account with them or otherwise use their services).
If you don’t feel like doing that to get the answer to today’s stock teaser, then you’re in the right place. I can at least help you out by figuring out the name of the company he’s currently teasing in the ad — Schiff has been focused on high yielding foreign stocks for quite some time, holding them through the downturn for the most part (according to his public statements, at least), and this is no different.
So what are the clues about this company?
It’s Chinese, which will turn off some of you instantly — but even with slowing growth and a clear refutation of the “decoupling” theory that China doesn’t need the West in order to grow, China does still remain one of the strongest growth economies in the world. And plus, they don’t have any pesky democratic principles to slow down their bailout programs — to the contrary, they have a government that’s going to have to spend some of its huge savings in order to keep people employed … and peaceful.
“Chinese TV Manufacturer with High Dividend”
“This company is one of the largest manufacturers of TVs, consumer electronic and display technology products, audio and visual and information technology products in China. In the export market, the company is a pioneer, offering quality in OEM (original equipment manufacture) and ODM (original design manufacture) services to international markets. Exports account for more than 15% of its total turnover.”
He goes into more detail about the company — he talks about the fact that they’ve gotten rid of their faltering mobile phone division, that they have a competitive advantage because of their access to flat panels, that the industry in general is still robust … and he concludes thus:
“Trading at just 2 times projected 2009 earnings, with 10% dividend yield, we view the Company as very attractive, with a compelling valuation. The share price has dropped over 50%. With a sound strategy focused on extending its market share in the Chinese TV market, we believe investors should put new money to work at these price levels.”
Sounds pretty good, eh? If you want to see the other details, they’re available in the latest issue of his free Global Investor newsletter, which is also generally a good read (even with the nameless, ticker-less teases). If you go read it, don’t forget to come back here for the answer!
So what is this company?
The mighty, mighty Thinkolator chews on those clues for a moment, then tells us that this is …
Skyworth Digital (0751 on the Hong Kong Exchange, SWDHF on the pink sheets)
This one is indeed a high yielder, at least if you look backward — the dividend for the last fiscal year (they’re on a June year) was 5 HK cents in total (a half cent interim dividend last winter, and another 4.5 cents at the end of the year). They currently have a dividend payout of about 25%, meaning they’re returning 25% of earnings to shareholders — in the last interim report, which was released last week, that dividend was announced as one cent versus a half cent a year ago at this time, so the indication, at least, is that they intend to maintain a good dividend.
I haven’t read any of the analyst reports yet, so I’m not sure what an objective forward PE might be, or if the forward PE of 2 is based just on Schiff’s analysis and projections. It’s believable, I suppose, though I don’t know if that level of growth will materialize.
The shares currently trade for about HK 45 cents, which would be a hair under six cents if you’re using US dollars and buying on the pink sheets (the volume is very low on the pink sheets, so be careful if you want to buy shares and go that route — make sure to place a bid that would be fair based on the current HK price and the current currency exchange rate, since that’s where the trading primarily takes place). Interestingly, the shares had such a quick spike about three weeks ago (from 40 cents to 50 cents, more or less) that the exchange asked the company if there might be a reason and asked for an official response — which was, essentially, “no.” Makes me wonder whether there might have been a big spike of buying by Euro Pacific Capital clients around then.
It’s a promising looking company, though I have no objective view of the potential growth of the Chinese TV market — I guess that’s probably the main wild card, since they are overwhelmingly focused on their domestic market (Schiff says 15% of sales are for export, the numbers I’ve seen are slightly lower but it’s quite possible that there are different interpretations based on the divisions they’ve recently shed, and they are growing their services to other original equipment manufacturers).
The company doesn’t carry much debt, they pay out a very reasonable percentage of income (many companies pay out well over half, they pay out about a quarter), so they should be able to finance their own growth to a good degree, and the shares certainly don’t look expensive — the trailing PE ratio is somewhere around 8, depending on how you figure it. It’s not a big firm, the market cap appears to be just about $140 million or so (HK$1 billion). If you’d like to research them further, a good place to start is always their filings and presentations — both are easily available on their website.
To his credit, Schiff includes some specific risks at the end of the email — and it’s far less florid than the typical newsletter ads I write about:
Despite the low share price, it could drop farther.
The dividend could be cut.
We could be wrong in our evaluation of the company’s chances to prosper and increase market share.
The Chinese TV Market is very competitive, and should the company not execute its business plan well, its earnings could drop.
The Chinese currency could decline against the US Dollar
I don’t know much else about this company, but I’m pretty sure that this is the one Schiff is teasing … and I’ll give him credit for calling an interesting stock to my attention. This one may merit further research, I’ll let you know if I dig up anything more interesting, and I hope you’ll do the same with a comment below if this intrigues you.
Personal Capital is an advertiser with Stock Gumshoe, but Travis also uses it every day for his personal accounts and finds it invaluable. Here's what he said: "They offer a great (and genuinely FREE) 'second opinion' for your financial plan, but what I love most is their automated financial dashboard -- it will look at all your assets and debts, tally up your asset allocation, project where you'll be at retirement, and suggest ways to manage risk or improve returns. It's free, I think their free tools are great, and I think it's worth checking out -- you can do so here.