From today's WSJ:
Dow Jones Newswires -- December 4, 1997
Singapore: Creative's Share Fall Tied To Holiday Sales
By Camille Klass
SINGAPORE (AP-Dow Jones)--Shares of Singapore soundcard maker Creative Technology Ltd. (CREAF) have plunged 20% this week, but not enough to shake most analysts' opinions of the stock.
One analyst with a European bank has indeed downgraded his recommendation for the share, but others said they're sticking to divergent views that range from 'sell' to 'buy.'
Analysts attributed the stock price plunge to a combination of profit-taking and panic selling on concerns that the much-eyed sales of electronics products in the U.S. this Christmas may fall below expectations.
While they said Creative's share price could stage a technical rebound over the next few days, views are mixed on the medium-term direction.
At Thursday's close, Creative shares ended at S$35, S$2.10 below Wednesday and S$9.30 lower than their close Friday. The stock has been the top price loser on the Stock Exchange of Singapore this week.
The share is also traded on the Nasdaq over-the-counter exchange in the U.S., and finished Wednesday at US$21.125, off 8%, or US$1.9375. The Singapore share price of Creative usually tracks that of the Nasdaq listing.
'So far, there's only been one cylinder firing, and that's the U.S.,' said Arthur Chai, an analyst with Merrill Lynch & Co. in Singapore, referring to weak Asian economies. Because of that, weakening retail demand in the U.S., the world's largest importer of electronics, could have a ripple effect worldwide.
He added that market watchers are watching closely to see if electronics sales this Christmas will rise or falter. Christmas in the U.S. is the traditional peak demand period for electronics products.
Despite the possibility that a fall in electronics sales in the U.S. could dent the revenues and profits of such companies as Creative, only the analyst with a European broking house downgraded his recommendation Wednesday to a 'sell' from a 'buy.'
Other recommendations remain unchanged, ranging from G.K. Goh's 'buy' to HSBC James Capel's 'sell.'
The analyst with the European broking house, who requested anonymity, said he changed his recommendation on concerns that Creative will face slowing revenue growth in Asia because of the regional currency crisis and the resultant economic slowdown.
He said revenue growth is key, given that improvements in the company's margins will become increasingly difficult to come by.
Creative has projected sales growth of between 10% and 15% for fiscal 1998, which ends next June 30, but some analysts said the target will be tough to achieve.
'For sales in the U.S., I've (forecast) a 15% growth for the company, even though (growth) in the last few quarters hasn't gone beyond 12%,' the analyst at the European house said, explaining growth will be pushed by stronger sales of Creative's multimedia upgrade kit and its AWE64 family of soundcards.
'Sales in Asia have fallen about 18% each quarter for the last two quarters. And this quarter, I'm looking at a 20-25% fall,' he said.
Unless sales in the U.S., which traditionally account for about 50% of total revenues, rise by between 20% and 25%, Creative isn't likely to meet its projected sales target for the current fiscal year, the analyst said.
While Merrill Lynch analyst Bernard Tan is maintaining his 'buy' recommendation on Creative, he doesn't expect Creative to match its revenue growth target.
Tan said, in a report released Wednesday, that he's forecasting revenue growth of 8% this year and that he has lowered his earnings per share forecasts for this year to US$2.50 from US$2.64.
'Although (the) December 1997 sell-through could still spring positive surprises, we believe it prudent to reset expectations to a lower level,' Tan said, citing the macroeconomic turmoil that has spread to Japan and South Korea - the two largest Asian markets for technology products.
'With the pessimism spreading, purchasing sentiment, even on lower-price products, has been negatively affected,' he added.
While market watchers fear softening PC sales in the U.S. could translate into lower sales of Creative's soundcard, G.K. Goh's Chan said Creative should continue to attain higher sales growth by capturing more of the market for installed PCs. He said retail customers generally buy Creative's soundcard products to upgrade their PCs.
'Only 20% of Creative's sales comes from OEMs (original equipment manufacturers),' he said, referring to PC makers who buy the soundcard and package it with their new PC. 'Eighty percent (of sales) comes from retail (outlets). If PC sales slow, Creative can still capture the market of installed PCs.'
Analysts said market watchers will get a clearer idea of how Christmas demand went in the first week of January, when sales figures are generally released.
In the meantime, several said Creative's share price decline provides a good buying opportunity. At current levels, the stock is trading well below the upper end of its historic band at a price-earnings multiple of nine times prospective 1998 earnings, they said.
-By Camille Klass 65-421-4801; cklass@ap.org
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