ValueBuddies.com : Value Investing Forum - Singapore, Hong Kong, U.S.

I wrote to AMAT's IR, immediately after their second selling. However, they have not replied me. Not something I really like of a reputable company.

I doubt AMAT will respond to the shareholders of UMS. In fact AMAT's investment in UMS is very insignificant to AMAT and selling all the shares in UMS is not really a big deal for AMAT. Thus very unlikely that the IR will need to answer to the existing UMS shareholders.

In the first place, why shd AMAT respond? Even if you are a AMAT shareholder, there is also no reason to tell you why they buy or sell shares of those companies that they invested in.

PROPOSED BONUS SHARE ISSUE ON THE BASIS OF ONE (1) BONUS SHARE FOR EVERY FOUR (4) EXISTING ORDINARY SHARES – ALLOTMENT AND ISSUE OF BONUS SHARES AND THE SETTING UP OF A TEMPORARY ODD LOT COUNTER

http://infopub.sgx.com/FileOpen/UMS%20An...eID=301532

(vested)

This coy has been paying attra divs yearly but its CEO selling agressively this yr ending on 10th June made me hesitate to buy. Am still watching whether he cont selling down or prepared to hold at least 20% stake before considering buying.

Digitimes Research: Southeast Asia looks to strong replacement demand for smartphones

Kristina Shih, DIGITIMES Research, Taipei [Monday 16 June 2014]

The ratio of 3G/4G subscribers to total mobile phone users in Southeast Asia remains relatively low despite the fact that most countries in the region have already set up their 3G networks, while some cities in Singapore and Malaysia have begun offering 4G services, according to Digitimes Research.

In Singapore, Malaysia and Thailand, where the population totals 140 million, the penetration rate of 3G/4G handsets tops over 50%. But the penetration rate dips to below 20% in Indonesia, the Philippines and Vietnam where the combined population of the three countries totals 400 million.

While 2G/3G models still dominate the entire Southeast Asia market, the growing number of 3G subscribers indicates that there will be a vast replacement demand for transitioning from feature phones to smartphones, said Digitimes Research.

Singapore began to implement 4G services in 2012 and now enjoys a high penetration rate of 3G/4G phones in the region, with smartphones priced at over US$500 accounting for the majority of models available in the market. Although Thailand just began to offer commercial 3G services in May 2013, the 3G penetration rate in the country is currently the second-highest in the region. Shipments of smartphones in Thailand are expected to grow 30% in 2014 despite the impact of the recent political upheaval.

Malaysia developed its 3G networks quite early, with some cities beginning to offer 4G services in 2013. Entry-level and mid-range smartphones priced at US$100-500 are the main models available currently, said Digitimes Research.

http://www.digitimes.com/news/a20140616PD201.html

(vested)

(16-06-2014, 02:58 PM)mslee888 Wrote: [ -> ]I got the same written reply from their IR too.
I know there will be people sceptical of their standard reply..but it is the best answer now unless Andy himself says something...right?

The IR, being an Agent to its Principal (UMS), has made a representation that:

“ the business of UMS is as per normal and there is no material impact to its fundamentals”

Under the doctrines of Law of Agency – the Principal is bound by the agent's actions on the basis of “apparent authority”, even if “actual authority”, whether express or implied, has not been given.

No one is sure if the company would issue a clarification – if no further announcement is made by the company to confirm or rectify its agent's representation , IMO，one could treat the reply from its IR as if it is issued by the Company.

(vested)

(16-06-2014, 07:56 PM)john Wrote: [ -> ]This coy has been paying attra divs yearly but its CEO selling agressively this yr ending on 10th June made me hesitate to buy. Am still watching whether he cont selling down or prepared to hold at least 20% stake before considering buying.

Agree with you. SSH has been off loading their share continuously since 2010. Andy had disposed ~6% since 2014.

API is selling as well.

IMO, this is a red flag.

Some interesting views on high customer concentration companies.

(vested)
_______________________________________________________________________________________________________________
Customer Concentration: Why all the Fuss?

Tags: AIRT, Customer Concentration, FDX.

A recurring theme on this site has been the significant risks associated with investing in companies whose revenues are highly concentrated among a small number of customers. I have never written a post directly addressing this subject, but I have received a few emails over the years that lead me to believe I should. These emails suggest that my wholesale avoidance of companies with highly concentrated revenues is misguided, and the argument seems to boil down to this:

"Fewer customers allows for more focus and better service, which translates into a closer relationship and more stable revenues. These revenues are also lower cost to the company than would otherwise be the case where there would be significant costs associated with finding and onboarding many smaller clients."

There are some good points here, and to be clear, I am not suggesting that customer concentration automatically disqualifies a company from being a good value opportunity. Rather, the way I think about customer concentration is that it creates a rebuttable presumption that future revenues are riskier than revenues derived from many smaller sources.

There are a number of ways to rebut this presumption. Where the company’s major customers have been stable for an extended period, this lends support to the ideas in the readers’ arguments above. For example, consider Air T, Inc (NASDAQ: AIRT), a microcap air cargo company whose major customer, Fedex (NYSE: FDX), consistently accounts for half of its revenues. Though concerning, this fact becomes somewhat less worrisome when we recognize that FDX has been a major customer throughout AIRT’s history, and back in the mid 1990s accounted for a whopping 90% of its revenues.

The duration of the relationship is just one consideration. Though AIRT and FDX have been dealing with each other for decades, their relationship is governed by short-term contracts that can be terminated on very short notice. It is up to the individual investor to balance out these facts and determine if this is a risk he is willing to take on.

The key to all of this is that the investor needs to look past the customer disclosure and consider the totality of the situation before rejecting the company as an investment opportunity on customer concentration risks. There may be long-term contractual tie ups or other factors which contribute to increase the cost of switching providers which can give the investor comfort despite the concentration.

Moving on to another point in the readers’ argument is that the costs of maintaining one large account are lower than the combined search and maintenance costs of many small accounts. While this is almost undoubtedly true (at least in terms of marketing costs), it ignores the overall profitability of the accounts. As mentioned in an earlier post on Porter’s Five Forces, when a customer has significant bargaining power a firm supplying that customer tends to find these sales less profitable. This can be due to volume discounts or other preferential pricing, or it can be from providing costly services as “sweeteners” which would not be provided to smaller accounts. The net effect is difficult to discern with certainty (one could compare the company’s various line item expenses as a percentage of revenue with similar companies which have less concentrated revenues), but I would guess that a major customer is going to tend to be less profitable than many smaller customers, all else equal.

How do you deal with companies that have highly concentrated revenues?

----------------------------------------------------------------------
Response from aagold:

In my opinion, here's the most important thing to think about in regard to customer concentration: taking all knowable information into account, what is the *expected* revenue going forward (in the sense of probability weighted average)? In other words, is there any more reason to expect a decline in revenue from the major customer than there is to expect an increase? If not, then we can consider the current revenue to be an *unbiased* estimate of future revenue, even if it's very concentrated in one customer. The unbiased nature of the going-forward expectation is very important, because then the risk of a significant revenue decline can be considered an "idiosyncratic" risk that's specific to this one company rather than a "systemic" risk that affects all companies due to global macroeconomics. The great thing about idiosyncratic risk is that it can be easily diversified away.

Here's an interesting thought experiment to consider. Let's say an investor owns a basket of 10 stocks, each of which has a severe level of customer concentration. But let's also assume that these 10 stocks are in completely distinct industries that have nothing to do with each other. Well, I'd argue that owning this basket of stocks is similar to owning stock in a single company that does *not* have any major issue with customer concentration. See what I mean?

Regards,
aagold


http://www.frankvoisin.com/2012/06/20/cu...-the-fuss/
________________________________________________________________________________________________________________

TESSCO Technologies: Dependence on one customer sent shares tumbling (TESS, T)

Tags: T, TESS.

TESSCO Technologies Incorporated (TESS) designs and delivers product and value chain solutions to wireless providers, allowing these customers to hold lower inventories and thus recognize cost savings. The company’s stock is down 32% year to date, with the bulk of that fall coming on January 19, when the company issued its third quarter earnings. The earnings themselves weren’t the problem, rather it was this disclosure about its relationship with its largest customer, AT&T (T) (emphasis added):

"During the third quarter we experienced lower purchasing volumes and significant pricing pressure from our large tier-one carrier, AT&T, and we expect this trend to continue. In addition, based on recent communications from the customer, we also face planned business model changes from them. The lower volumes and pricing pressure will put pressure on our net profits, and the planned business model changes put our current and future business with this customer at risk. As we have historically disclosed, the nature of our business is that our relationships with most customers and suppliers, including AT&T, typically contain no ongoing purchase or sale obligations and are terminable by either party upon relatively short notice."

Evidently the loss of iPhone exclusivity at AT&T has completely upended their business model, and they are coming down hard on their suppliers, like TESS.

This wouldn’t be as big a deal if it was just any customer, but AT&T is TESS’ largest customer, accounting for 28 – 34% of total revenue. Announcing that a third of your revenue is going to either decline, or become less profitable, or both, does nothing for Mr. Market’s opinion about your company’s value.

It is too bad really, as the company had a catalyst already. Discovery Equity Partners has spent the last year or two working to get management to eliminate its poison pill, reduce the threshold for shareholders to call a special meeting, form a “risk and strategy committee” to respond to takeover offers, and declassify the board. Then, in September, Discovery launched an offer for the company at $15.50. Unfortunately, given the tenuous relationship with AT&T, it is anyone’s guess whether Discovery is still interested, and if so, what their revised price would be.

The company has a lot of strengths, and if not for the news about AT&T, I would be buying at these prices (my EPV valuation pegs the company in the mid/high teens, even above Discovery’s offer). The company has little debt, a nice dividend yield, good free cash flows and stable returns. The presence of a catalyst makes it that much more attractive. Unfortunately, unless things change with AT&T, there is simply too much risk to justify an investment

http://www.frankvoisin.com/2011/04/01/te...ng-tess-t/

I've put UMS in my watch list from $0.40, took my eyes off a few months and then it was gone. I just helped to clear the sell Q at $0.555 and vested.