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ASTI: A doubling of share price in time?

Sunday, September 19, 2010

I recently bought some shares of ASTI Holdings Limited.  This company is engaged in the provision of solutions and technologies in the backend (ie assembly, test and finishing) arena of the semiconductor industry as well as the distribution of electronic components and products plus the provision of semiconductor application in consumer electronics, computer peripheral and communication solutions. The description of  ASTI's business is taken from its homepage.

Anyone who knows me well would be somewhat surprised at this move of mine since I am not in tune with high technology at all and IT is as Greek to me as, well, Greek. However, I am not a hermit and I do keep in touch with the real world.  There is much news of how the cyclical demand for semiconductors has been ramping up and that this momentum has yet to run its course.

I read an article in The Straits Times (22 Aug 10) by Tan Ai Teng on why tech stocks are a good buy then:

1. Tech stocks are in a period of strong earnings recovery.

2. The second half of this year would have been stronger if not for a shortage of components.

"I am bullish on the semiconductor equipment related business. According to Semiconductor Association's (SEMI) forecast, global semiconductor equipment sales are expected to climb 104% this year... and rise a further 9% next year."

Since I am so unfamiliar with tech stocks, I was wondering which company's shares offer good value.  As luck would have it, I read an article in Next Insight where NRA reported on Innotek and ASTI.  Both companies seem promising. However, Innotek's share price has appreciated enormously while ASTI seems like a laggard. 

The following factors drew me to ASTI:

1. A share price of 10.5c then with a PER of 3.8x and NTA/share of 16.9c.

2. Improving balance sheet with its gearing level falling from 22% to 8%.

3. Gross margin (GP) expanded from 7.1% to 22% year on year.

Read article here.

As per my usual style, I looked at the chart to find a fair entry price.  ASTI bottomed in late November 08 with price touching a low of 4.5c.  It made a higher low of 6.5c on 16 March 2010. It broke above the 200dMA in April 2010 and has been trading above this MA since. Using candlesticks and the 200dMA as references, strong support at 9c is spotted.  Seeing how the 20d, 50d and 100d MAs are bunching together at around 10.5c, however, I decided to buy some at 10.5c as a hedge.  Price might or might not retest  support at 9c.  If it does not, I'm already in.  If it does, I would buy more as the uptrend is intact.  Looking at the OBV, it is obvious that there is longer term accumulation going on and once all the sellers are done selling, the share price could rise.

NRA has a target price of 21c for ASTI.  That is a 100% upside from my entry price of 10.5c.  Nice but I see resistance at 12c which was tested several times in recent months.  It is, however, also interesting to note that we might be seeing the formation of an ascending triangle here with 12c being the top of the formation.  If  the resistance at 12c is taken out, I see immediate resistance at 13.5c with a near term target of 15c. Over a longer term, we could even see 17.5c, a support level which broke in early 2008, tested.  Of course, in extremely bullish circumstances, prices could go parabolic in which case all resistance levels identified could be destroyed like butter cut by a hot knife. Then, it would be time for me to let go and run for the hills.

Overall, ASTI looks rather promising.  Wish me luck. :)

This video describes how the semiconductor industry may experience shortages due to capacity constraints, increased demand, and low inventory levels (June 14, 2010):

P.S. I am having trouble saving charts from ChartNexus in Lim&Tan. So, I am unable to put up the chart for ASTI here.

6 comments:

Anonymous said...

hi ak

jus wondering abt this point " 2. Improving balance sheet with its gearing level falling from 22% to 8%. "

from the latest results, its total borrowing was 4,242+47,518 ( amount due to financial institutions) = 51760

total assets was 270,289

so shouldn't gearing be 51760/270,289 =19.1% instead of 8% .. or did i miss anything out ?

regards

B

AK71 said...

Hi B,

Gearing for a company is calculated as Long Term Debt/Shareholder Equity.

For ASTI, long term debt (non-current liabilities) is $7.279m while its total equity is $107.357m. Gearing is 6.78%.

However, if we remove minority interests of $12.198m, equity is reduced to $95.159. Then, gearing is 7.65%, approximately 8%. :)

Anonymous said...

hi ak

thx for correcting my error.. i always thought gearing was the same as debt ratio..

but y would we wan to look at gearing ratio since its focus is on long term debt.. shouldnt we be more concerned about the short term debt or rather the total debt instead of the long term debt only.

regards

B

AK71 said...

Hi B,

Gearing for companies is looked at differently from gearing for REITs. For REITs, we look at Debt/Assets. Therein lies the confusion.

So, most of ASTI's debts are short term in nature. Having a lot of short term debts is dangerous in situations where credit is hard to come by (like in the recent financial crisis). In the current environment, it is less of a worry.

Short term debts are usually cheaper compared to long term debts as they are perceived by lenders to be less risky.

Nonetheless, it is important to assess the short term financial health of Companies. To do this, we employ the Current Ratio which divides the total Current Assets by the total Current Liabilities.

For ASTI, this would be $227.435m/$155.653m = 1.46. This is healthy.

If we want to be more stringent, use the Quick Ratio which removes inventories from the total Current Assets as inventories is considered to be the least liquid of Current Assets.

This gives us a ratio of $176.544/$155.654 = 1.13. This is healthy too.

We are looking for values of >1 for reassurance. :)

Anonymous said...

hi ak

once again thanks for the info.. learn something new again :)

regards
B

AK71 said...

Hi B,

Thank you too. Comments like yours keep me on my toes and help to keep my mind sharp (and it really needs sharpening as I grow older). ;)

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