The StockLemon has put out another piece on BRLC. This Andrew Left fellow is a douche bag like none other. He's also posting his pieces over at Seekingalpha.com. RGRDS - JT
November 14, 2006
Stocklemon updates Syntax-Brillian
Syntax-Brillian (BRLC) - A Roadmap for a Money Losing Business
As Black Friday approaches, it is no surprise that the must have item of the year is an LCD -Television. This known fact has caused the recent run up in stock price of low cost LCD middleman Syntax- Brillian (BRLC). We can only hope that the picture given off by the televisions of Syntax is brighter than the picture given by their most recent balance sheet.
As CBS Marketwatch just reported,
“Many analysts had been forecasting that flat-screen TV prices this holiday season would be down 25% to 30% from last year, said Joe Feldman, managing director and the senior retailing analyst at research firm Telsey Advisory Group.”
marketwatch.com
The drop in LCD Prices has become a hot topic as the holiday Season Approaches.
digitimes.com
Yet, we are supposed to believe that Syntax-Brillian can maintain 18% gross margins as just a reseller of LCD Televisions. Let us look into the recent Q and get a “clearer picture” of the company.
Cash Does Not Lie
As of Syntax’s most recent filing, their net cash position was (30.2 million) yes that is negative $30 million
This is cash plus long term investments minus total debt and converts. Compare this to their last filing as of September 13, when the stock was trading at $4.5 a share and their net cash was ($29.95 million)
So the market cap increased by $150 million but net cash decreased by 300k.
The future of Syntax-Brillian is not so bright. Just look at what we found in the recent 10Q filing:
sec.gov
1. Price Protection from Kolin (largest shareholder) was $4.3 million which is larger than their net income.
2. Kolin’s price protection is no longer guaranteed so they might not be able to enjoy its protection in future quarters. This was never discussed by management in the conference call and extremely relevant considering price protection for the year ending June 30, 2006 was $61 million
3. The company wrote up inventory $5,319,000. Yes, that is not a misprint they wrote it up, not down. In a time when LCD prices have been slashed by up to 30% over the past 6 months, Syntax-Brillian wrote up their inventory
4. If you reverse all the charges for costs of goods sold (price protection, warranty accrual, and inventory writeup) BRLC is LOSING MONEY on every television sold.
5. One Asian customer accounted for 54% of revenue ($47 million dollars). This can only be the same customer that was responsible for the $53.4 million accounts receivable. So basically, this customer is taking televisions and not paying so fast. The amazing thing is that it appears as if the customer actually owes more money than the amount of product they bought in the entire quarter.
*Note this receivable could not even be factored because of the difficulty in repatriating money from China. Nothing is to say we will even see this cash in the next Q.
The CEO would like us to believe that in the future, price protection might come from other avenues besides Kolin. We are sorry to say that even LG Phillips, the panel provider to Syntax-Brillian will not provide price protection as stated in their most recent 20-F.
““…the company does not offer any form of price protection or a returns policy…”
It is the opinion of Stocklemon that BRLC stuffed their channel in order to put a good top line number and used accounting tricks to attempt to produce a healthy bottom line number. All of this to take the stock up in the short term and allow the company to do an equity raise from one of the many cheerleaders (Brean Murray, Utenberg)
Why would a company go through all these measures to get the stock higher? On January 5, 2007 the company has a loan payable to Preferred Bank for $13.8 million. This is more than the cash position of the company. More noted, this loan is personally guaranteed by certain of the officers and directors of BRLC.
We are not doubting the Syntax-Brillian can sell televisions. What we are doubting is if they can make a business selling televisions at a loss, not to mention a $400 million business.
Maybe the insiders were keen to this as they have been unloading stock on the investing public. In a marketplace where low priced flat panel televisions are becoming commodities and margins are decreasing, Syntax-Brillian has need to worry. This one trick pony is undercapitalized to compete in the space and when the accounting tricks and price protection run out, so will the investors.
As Jim Cramer said on November 6 about BRLC…. time to ring the cash register.
Cautious Investing To All. |
