stock down 10% in pre-market - so what's going on here ?
this morning Nikkei reported that Apple has cut display supplier orders in half with Japan Display likely to be more affected than Sharp and LG Display with orders down as much as 80%.
as Japan Display is the contractor for the IPhone and IPad displays made by Nam Tai this is bad news for NTE as most likely the company will experience very weak revenue streams from Japan Display for the March quarter.
remember that the Apple sub-contracts caused the recent run-up in the shares - with the revenue stream becoming seemingly lumpy almost immediately after full scale ramp-up investors will take profits here.
Wouldn't be long the shares going into the earnings call two weeks from now (to be fair I was thinking the same last quarter but was proven very very wrong by the company but this time with the shares 40% higher I should be finally right here.)
What's going on is it's options expiration week. There is a billion dollars worth of calls out there that need to be taken out. I suspect market manipulation. The big boys need to drive down the price of AAPL before Friday.
I believe the "news" is bogus hype. I will wait until I hear from Mr. Koo's conference call before hitting the panic button. Meantime, I will add a little more if the price gets down into the mid-$12 range.
the IPhone 5 is just selling way below Apple's obviously optimistic projections especially in Europe and some mature Asian countries. The IPad is getting cannibalized heavily by the IPad Mini. None of these developments has been a secret to the street as most analysts already cut their estimates and price targets on Apple.
But with NTE trading close to 52-week-highs and contractor Japan Display notably exposed the most to recent order cuts there's plenty of downside on this news.
you might want to re-read my January, 1st posting about NTE:
during the last year the stock price tripled due to the ramping of two huge Apple display subcontracts (IPad and IPhone).
With the majority of the business now tied to the success of two major Apple products the stock price will be somewhat tied to Apples' performance going forward. As Apple has already taken down supplier orders significantly for the current quarter there's risk to managements' projections of ongoing growth. To make up for lumpy Apple business the company needs to secure sizeable new contracts as soon as possible.
with product cycles becoming shorter and shorter every month there's risk to the renewal of the Apple subcontracts as product requirement profiles change rapidly.
within the EMS space the stock doesn't look extremely undervalued as a PE ration of 6 to 8 is quite common here. Investors don't love the space as the business is lumpy and margins are razor thin. NTE is looking better though as their business has been on the ramp for some quarters now and they are also paying a sizeable dividend.
To get a boost from the next earnings announcement the numbers need to be substantially above high expectations (e.g. one guy here is expecting an eps number of close to $1 which in my view is illusive). But even if they manage to show a great eps number and better revenue traction for the month of December the slightest management commentary on the call or in the press release about decelerating order trends going forward will lead to a really big selloff.
Investors are expecting a perfect quarter and management to RAISE expectations once again otherwise the stock price will go down.
As for the Shenzen property this is kind of a windfall profit leading to a big one time gain but has nothing to do with the ordinary course of business. The purchase price needs to be a substantial part of the current market cap to move the stock price.
As for the dividend investors are already waiting for another dividend raise in 2013, so if this won't happen there will be disappointment. A special dividend isn't likely to be in the cards as the date for such a measure has passed. Remember also that most of the cash is in RMB and not in USD, so there's not as much room for a one time dividend as you might think.
NTE needs to perform extraordinarily well going forward to make the stock price spiraling higher once again. While this might very well happen in 2013 there are also plenty of risks which might prevent another year of stellar stock price performance.