DTEJD1997 Posted April 26, 2013 Share Posted April 26, 2013 Hey all: I've seen DSWL discussed in snippets here and there...but it does not have much discussion, nor does it have it's own thread, so I thought I would start it! DSWL is a contract manufacturer located in China. They mainly make electronic gizmos. They make reasonably expensive items such as sound mixing boards and secondary printer tray for HP printers & such, not $.03 plastic gizmos... The valuation metrics on this are pretty compelling. They sell for LESS than the cash they have in the bank. They pay a dividend of about 8%. Book value is about $6.38/share. No debt. They have a long history of dividends. I do not think they are a "fraud" for a variety of reasons. One problem, they are in a difficult industry and not currently making much money. They are basically breaking even. HOWEVER, that could change if they land any significant new contracts. They are trying to get into medical devices and have ISO certification for such... Another interesting possibility is that they own a large factory in Shenzen. They have owned it since the 90's. I have heard that Shenzen has grown a bit since then and that land prices have also gone up. THUS, this factory MIGHT be worth a LOT more than what it is being carried for on the books. So it is an interesting situation, certainly a classic value stock. It is a large % of my portfolio. I have not done too well with it, but I have hopes for the future. Any thoughts on this? Link to comment Share on other sites More sharing options...
MYDemaray Posted April 26, 2013 Share Posted April 26, 2013 I owned this several years ago (it had similar value characteristics back then) but eventually concluded that material costs and competition were squeezing it. Haven't looked at it lately though -- has anything changed? Link to comment Share on other sites More sharing options...
blainehodder Posted April 26, 2013 Share Posted April 26, 2013 I've looked at it a few times... never pulled the trigger due to the cratering margins.... I would like to see the old F-score spike and op margins increase before pulling the trigger on something like Deswell. It is a classic Graham for sure. One interesting historical note on Deswell... Way back in the day it was Dr. Michael Burry's largest position before he got scouted and started Scion. You can still read all of his posts about it on the Sillicon Investor site... http://www.siliconinvestor.com/readmsg.aspx?msgid=10343208 It doesn't exactly look like a fraud given how long they've been around, the amount of investor scrutiny, and the terrible numbers, but of course you can never eliminate that risk. I'd definitely be interested in hearing a more detailed thesis DTEJD1997... Do you believe the margins are going to turn and the business will improve, or are you just looking at it as an asset play/ capital returns? Link to comment Share on other sites More sharing options...
mhdousa Posted April 26, 2013 Share Posted April 26, 2013 For what it's worth, Allan Mecham ("the 400% man") owns it. Link to comment Share on other sites More sharing options...
Hielko Posted April 26, 2013 Share Posted April 26, 2013 With a company like this I think it's more important to focus on FCF instead of earnings. Earnings are bad, but when you have a company that trades at 1/4 of book you have a lot of depreciation that is imo not that relevant. FCF matters more, and on that metric they are doing pretty decent. Link to comment Share on other sites More sharing options...
Philip Morris IV Posted April 26, 2013 Share Posted April 26, 2013 For what it's worth, Allan Mecham ("the 400% man") owns it. I was going to mention that, although it's also worth noting DSWL is less than 1% of Arlington's funds. He could be building a position though. New round of 13Fs coming up. Link to comment Share on other sites More sharing options...
matjone Posted April 26, 2013 Share Posted April 26, 2013 I bought this one a while back after seeing arlington owned it so I share your hopes. I thought about putting it up here but I really had nothing to discuss other than the numbers. If you take the market cap and back out excess cash & investments, and divide that number by how fast they are generating cash, it looks pretty good. But I know nothing about the injection molded plastic parts industry, other than the fact that I worked at a tail light factory one summer in college and it really sucked. Link to comment Share on other sites More sharing options...
DTEJD1997 Posted April 29, 2013 Author Share Posted April 29, 2013 Hey all: There is no IMMEDIATE catalyst, but there are some that are possibly on the medium term horizon, say 12 months or so... A). I think the factories they own, could be very valuable. Specifically, the factory in Shenzen. This is merely a supposition. I am inferring it's value from the general in value of property in & around Shenzen. I am shocked at how developed Shenzen has become. As an example of this, please see NTE's Shenzen factory valuation. I suspect the value of the land could EASILY exceed the market cap of the company, perhaps by a wide amount. B). DSWL has received ISO certification for production of medical products. This is going to be a growth industry as the age of population increases. Management has stated that this is possible future growth area. C). The company is simply so cheap, it is an attractive takeover target. No takeover will happen without management approval, and they have stated that they have no intention of selling and wish to remain public. This was a few years ago though, how long will management tolerate being a net-net? If you are buying DSWL for well under it's cash value, I don't see how you lose. The only question is how long it is going to take to realize value... Link to comment Share on other sites More sharing options...
LC Posted April 29, 2013 Share Posted April 29, 2013 Hey all: There is no IMMEDIATE catalyst, but there are some that are possibly on the medium term horizon, say 12 months or so... A). I think the factories they own, could be very valuable. Specifically, the factory in Shenzen. This is merely a supposition. I am inferring it's value from the general in value of property in & around Shenzen. I am shocked at how developed Shenzen has become. As an example of this, please see NTE's Shenzen factory valuation. I suspect the value of the land could EASILY exceed the market cap of the company, perhaps by a wide amount. B). DSWL has received ISO certification for production of medical products. This is going to be a growth industry as the age of population increases. Management has stated that this is possible future growth area. C). The company is simply so cheap, it is an attractive takeover target. No takeover will happen without management approval, and they have stated that they have no intention of selling and wish to remain public. This was a few years ago though, how long will management tolerate being a net-net? If you are buying DSWL for well under it's cash value, I don't see how you lose. The only question is how long it is going to take to realize value... None of those seem like a 1-2 month timeframe catalyst... I think the reason to buy DSWL is within a basket of net-nets, Graham style. Link to comment Share on other sites More sharing options...
mcliu Posted April 29, 2013 Share Posted April 29, 2013 Tough one, I was invested a few years ago, but I found that there's little reason for the controlling shareholder to maximize value for the minority. Link to comment Share on other sites More sharing options...
BG2008 Posted April 29, 2013 Share Posted April 29, 2013 A friend of mine had mentioned DSWL to me when it traded at a higher price. A couple comments, I believe the land is in Dong Guan and not Shenzhen. Shenzhen is indeed very built up. But Dong Guan is essentially a factory town. Have never google map the address of the factory, but I don't think this is a 5th Ave NYC address/property. Unless they can do a sale-leaseback, they need the land/building for the factory to operate. I don't think management will want to shut down operation and liquidate. The fact that they've paid a dividend for such a long time indicates that they're likely not a fraud. I have to say that plastic injection molding is about the most commoditized a product you can get despite some arguing that what they do is "value added". The cashflow certainly does not reflect that. A friend has also mentioned that he's met face to face with management team. Overall, the management team does not have any sorts of near term plans to somehow turn around operation. Probably okay as a net-net basket bet. But not my highest priority for a net-net basket bet either Link to comment Share on other sites More sharing options...
DTEJD1997 Posted June 5, 2014 Author Share Posted June 5, 2014 Hey all: Anybody notice that DSWL insiders have been buying quite a few shares lately at these low prices? I am glad I have company. I just couldn't help myself from picking up a few thousand shares when they went on sale for $1.999. Maybe they know of some good news coming out? Link to comment Share on other sites More sharing options...
yadayada Posted June 5, 2014 Share Posted June 5, 2014 the dividend is going up, and they did generate like 12 million $ in FCF in last 3 years? Link to comment Share on other sites More sharing options...
matjone Posted June 5, 2014 Share Posted June 5, 2014 I saw that. Bought some more myself, but I missed the bottom. I wasn't even aware of it. Maybe I should log in to my account more often. I wish they'd forget about the dividend and just put it all towards buying back shares. Link to comment Share on other sites More sharing options...
yadayada Posted June 5, 2014 Share Posted June 5, 2014 yeah is there like a good service that emails you with price alarms? Link to comment Share on other sites More sharing options...
matjone Posted June 5, 2014 Share Posted June 5, 2014 I use FT for that. Link to comment Share on other sites More sharing options...
writser Posted June 10, 2014 Share Posted June 10, 2014 Last quarter 2014 results are out, still terrible at first glance :) . I'm curious about the Q1 '15 results since these are the ones that overlap with the insider transactions. Link to comment Share on other sites More sharing options...
frommi Posted June 12, 2014 Share Posted June 12, 2014 Looks like a dhando investment at these prices. Its possible that the insider transactions are linked with the new CEO, perhaps this is the catalyst everyone is waiting for. I build a small position just in case. The only negative thing is that it is a chinese stock. Link to comment Share on other sites More sharing options...
tinhb Posted July 10, 2014 Share Posted July 10, 2014 http://www.proaudio-central.com/articles/middle-east/Uli-Behringer-seeks-board-seat-at-Deswell http://www.ravepubs.com/behringer-seeks-seat-deswells-company-board/ Uli Behringer seeks board seat at Deswell. Is this old news? Anybody knows about this? Link to comment Share on other sites More sharing options...
NeverLoseMoney Posted July 10, 2014 Share Posted July 10, 2014 I can't find any official statements by Music-Group (Behringer's company) or more reputable sources. Apparently the firm Behringer was (is?) a customer of Deswell for their audio equipment. I found this article from 1997: http://www.plasticsnews.com/article/19970113/NEWS/301139976/deswell-adds-presses . It says Behringer owned 10% of Deswell then. Behringer is not on the list of major shareholders in the latest 20-F form. I don't know what to make of the articles you linked to, but I don't think you should rely on them. It would be positive if Behringer seeks a board seat. I'd like to see an official statement though or a filing that shows Behringer as a current Deswell shareholder. Link to comment Share on other sites More sharing options...
writser Posted July 14, 2014 Share Posted July 14, 2014 Annual is out. Also, looks like the Behringer statement is for real (press release, twitter). Link to comment Share on other sites More sharing options...
writser Posted July 30, 2014 Share Posted July 30, 2014 Another 13D-filing: link. Their former CEO and current chairman, Richard Pui Hon Lau, has been on a buying spree, buying ~870k shares in the last four months on the open market, roughly 33% of all shares traded during that period, and increased his stake from 11% to 16.5%. That, together with the Behringer statement, makes me wonder what is going on here. Are they fighting for control of the company? Is the chairman trying to take the company private? Or is mr. Market simply grossly undervaluing the company? Too bad that I can't find out who other major shareholder are (as far as I know). Are disclosure rules for foreign private company listed in the US the same as those for US companies? Link to comment Share on other sites More sharing options...
Haasje Posted July 30, 2014 Share Posted July 30, 2014 Hi, I wrote the last SA article before leaving on vacation. I don't think the disclosure rules of major shareholders are the same for DSWL. They make a statement in the annual to the effect that they are not obliged to disclose who these are. The only shareholders they disclose are the insiders. They also released information that 10 or 11 U.S shareholders of record hold almost all the shares. Could these be brokers? Holding the shares in their name for a multitude of clients. Otherwise the figures are kind of weird. I emailed with mr. Behringer and he was kind enough to confirm the press release and also agreed to look at any questions I had but I may have asked questions that he isn't willing to answer at this point or perhaps can't answer because I haven't heard back. One of the questions I had was why he stayed invested in DSWL after setting up his own factory in China. From what I read about him (on company websites) he certainly appears to know his way around the Chinese contract manufacturing market. Thanks for posting the insider buying. A struggle for control is an interesting idea. I don't know what is going on but I'd think that it is a good thing there is something going on at what essentially has been a value trap over the past few years. I'm long btw. Link to comment Share on other sites More sharing options...
frommi Posted December 20, 2014 Share Posted December 20, 2014 I am missing their last quarterly report, do they have to report till the end of the december or don`t they have to report at all? Link to comment Share on other sites More sharing options...
Patmo Posted December 20, 2014 Share Posted December 20, 2014 Is this a reverse merger / VIE stock? Looks like it. Assets don't matter when you have 0 claim over them... Link to comment Share on other sites More sharing options...
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