Ron, I am not sure I understand your logic.
First, any sales between Deswell's subsidiaries (Kwanasia, Jetcrown, Kwanta) would be eliminated in the consolidation accounting. The only real issue for the auditors might come in the transfer pricing between Jet-Crown and Kwanasia, as Kwanasia has the large minority interest. But as Jet-Crown manufactures for Kwanasia, I see the risk as being relatively low.
Secondly, my understanding has been that all Kwanasia does is assembly work (assembling telephone equipment for Inter-tel and studio equipment for Behringer). The fact that they are adding capacity for additional assembly work still strikes me as very positive.
The more general question -- how they manage to make 45% margins in assembly operations --which are supposed to be low margin, competitive businesses just like plastic injection molding -- is still of interest. But I am disinclined to argue with success.
Certainly this expansion will not drive earnings to the same degree as the expansion of JetCrown, due to the minority interest, but for rough analysis a 120% increase in a segment equal to 50% of sales, at a 30% margin, with a 49% minority interest, should result in net earnings up 40% when full capacity is reached...I will review my earnings model and update it soon.
I still feel very confident in the company providing 50% earnings growth the next two years. |
