VAYUE.com

Highlights.The company will increase its stake in Wah Yuen from 53.4% to 55.56% at US$3.0m consideration. Wah Yuen is a private company engaged in manufacturing magnesium alloy casing for laptops. In FY12/08A, it made a net loss of US$4.35m. Compal, a leading PC OEM manufacturer, is another substantial shareholder of Wah Yuen with 31.5% interest (will increase to 33.6%).

Our view. We think the move will further strengthen Juteng’s exposure in metal casing manufacturing business, which is major target for the company this year to realize its goal (market share to rise from ~30% in 2008 to 35%). Due to the weak economy, the management expects a soft demand for notebook and anticipates a ~10% drop in its bottom line this year. Nevertheless, we argue the current valuation (5.7x historically) is undemanding for such a global industry leader. In addition, we see potential catalysts to include:

• Better-than-expected PC shipment in 1Q (declined 7.1% versus IDC’s forecast of 8.2%), partly backed by strong demand for netbook (Juteng has ~40% market share for this particular product category)
• Probably earlier-than-expected release of Windows 7 by Microsoft in 2H, which will trigger replacement consumption for notebooks
• Issuance of TDR by Juteng shortly.

Update on Tuesday, May 12, 2009 at 9:19AM by VAYUE.com Team

Highlights.The company announced to launch offering of 100m units of TDR (each represents one new Juteng share) in Taiwan with offering price ranged NT$14.25-19.00 (HK$3.34-4.46).

Our view. Considering: 1) the company’s strong position in laptop casing market (~30% market share in 2008); 2) well understanding of IT industry in Taiwan; 3) heating sentiment towards TDR backed by improving strait relationship, we think the offering will probably be welcomed by local investors, which, in turn, could become a potential short-term catalyst for Juteng’s share price in HK. Fundamentally, the company will raise ~HK$30-40m cash from issuance of these TDR, improving balance sheet apparently (net debt: HK$1.4b at end-FY12/08A). We maintain the counter in our trading call list.