PCI Limited

I chanced upon the discussion on PCI at valuebuddies.com and decided to find out more.


Company Background
The Group first commenced its operations as Printed Circuits Intl Pte Ltd, an independent manufacturer of printed circuit boards. It quickly expanded into the manufacture of LCDs (liquid crystal displays), LCD Modules and PCB assemblies. Today, its operations and business include OEM and contract manufacturing with an emphasis on higher value-added PCB based or LCD based semi-finished and finished products for the telecommunications, office automation and automotive industries. Some of the products manufactured for OEMs and semi-finished products include cordless telephones, point of sales terminals, portable barcode readers and modem cards. Major customers of the Group include Motorola, Xerox, Tecom, Roche, Qualcomm, Lucent Technologies, Philips and Robert Bosch.


1Q15 result
PCI released its 1Q15 result on 6 November 2014. Revenue upped 0.2%, gross profit upped 24.3%, and profit before tax increased by 104.9% to US$2,026k. Cash and bank balance stands at US$56,206k and debt is zero. With 199,099,000 issued shares, cash per share works out to be 35.3 Singapore cents and at the last transacted price of 42.0 cents per share, price/cash is 1.19. Net cash flow used in operating activities is US$887k. EPS for 1Q15 is 0.8 US cents while NAV is 42.77 US cents. Management guided that, “Global economic growth remains weak and uncertain. Demand for electronics products continues to be slow, despite the approach of the year-end festive season. In view of this, the directors are cautious about the Group's business outlook for the next 6 to 12 months.” 

At the last transacted price of 42.0 Singapore cents, it is trading at extrapolated PER of 10.5 and P/B of 0.79. Dividend for the last 3 FYs were 3.0 cents and dividend yield works out to be 7.1%. Another 7.0 cents was paid out as special dividend in FY14. 



FY13 and FY14 Annual Reports
 I browsed through the FY13 and FY14 Annual Reports of PCI but did not find much interesting information apart form the following:

• Executive Chairman Peh Kwee Chim's remuneration is in the range of USD 500,000 to USD 749,999 while executive director Peh Siong Woon Terence's remuneration is in the range of USD 250,000 to USD 499,999 in FY14.  As PCI has CEO and COO, Peh Kwee Chim and Peh Siong Woon are not involved in the daily operation.  Their remuneration packages are very high in consideration that PCI only made $5.7m after tax profit in FY14. 
• The only leasehold land and building it owns in Singapore at 322/386/388/390 Jalan Ahmad Ibrahim Singapore 629151/6/7/5 has a 60 years lease from 1 July 1966 and the lease will end on 30 June 2026, about 12 years from now.  PCI either has to extend the lease or secure another factory space within the next few years.  

Conclusion
PCI is a decent counter to own in view of the discount to net asset value, high cash level and high dividend yield. The flip side is that PCI has very low operation margin (4.3% for 1Q15) and any cost pressure or drop in revenue will reduce its profit substantially and may put it in the red. As guided by the Management, demand for electronics products continues to be slow they are cautious about the Group's business outlook for the next 6 to 12 months.” 

I will keep PCI on the watch list and will consider accumulating at about 35.0 cents as 35.0 cents appears to be a strong support level from the chart.