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Technology Stocks : Deswell Industries (DSWL)

DSWL 3.830

-5.7%

Nov 19 3:55 PM EST

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To: Ron Bower who wrote (766)	5/29/1998 12:57:00 AM
From: Shane M	Read Replies (2) of 1418

Thread, I put together a set of assumptions for DSWLF to gauge where I expect their financial performance to be in the near future. The table below outlines. Some assumptions: -I have Sales/Shr (SPS) increasing at 25% for '99 and '00. -A declining gross margin environment, CGS increasing as % of sales by .5% a year. -Note that "other" income is increasing in the forecast to 2.7% of sales from 1.65% in '98. This is representative of Q1 '99. -I'm using the 4.3% tax rate through yr 2000. I am unsure as to when taxes will increase. Ideas? -the negative adjustments to income are the minority interests. They seem to be be dropping from around 20% of after tax profits in '98 to around 15% of profits now, and hence the reduction. - Two EPS estimates are provided. Once estimate is based on ROE, and the other based on the sales and net margin projection. I average the two to get an expected target price. DSWLF 2000 1999 1998 1997 1996 1995 1994 sales 128.0 92.5 66.2 44.5 30.6 21 16.2 shares 6.2 5.6 5.0 4.6 4.2 3.4 3.4 SPS 20.65 16.52 13.22 9.67 7.29 6.18 4.76 SPS chg % 25 25 36.6 32.7 18.0 29.6 As % of sales CGS 0.557 0.552 0.5477 0.573 0.588 0.619 0.63 SGA 0.213 0.213 0.213 0.178 0.177 0.162 0.16 Tot Op Exp 0.77 0.765 0.760 0.751 0.765 0.781 0.790 oth inc 0.027 0.027 0.0165 0.007 0.007 -0.005 -0.012 pretax marg 0.257 0.262 0.256 0.256 0.242 0.214 0.198 tax rate 4.3% 4.3% 4.1% 4.3% 2.9% 2.3% 0.0% tax 0.011 0.011 0.011 0.011 0.007 0.005 0.000 adjust1 -0.038 -0.039 -0.0497 -0.049 -0.042 -0.019 -0.006 adjust2 0.000 0.000 0.000 0.000 0.000 0.000 0.000 net marg 0.208 0.212 0.196 0.196 0.193 0.190 0.192 bvps 14.11 11.29 9.03 6.40 5.03 2.15 1.32 bvps chg% 25.0 25.0 41.1 27.2 134.0 62.9 ROE 25.3 25.3 28.5 29.5 28 54.8 68.9 eps ROE 3.57 2.86 2.57 1.89 1.41 1.18 0.91 eps npm 4.29 3.50 2.58 1.90 1.41 1.17 0.91 diluted shares 6.8 6.2 5.3 4.8 dilute eps ROE 3.25 2.60 2.41 1.81 dilute eps npm 3.90 3.18 2.42 1.82 Curr dilute PE 7.9 7.9 7.9 7.9 Mid Value PE 10 10 10 10 High PE 12 12 12 12 Expected Prices Current PE 28.21 22.81 19.09 14.32 Mid Value 35.71 28.87 24.17 18.13 High PE 42.86 34.65 29.00 21.76 The reduction in minority interests and increase in other income looks to be a viable potential buffer to any increases in CGS%. The 25.3% ROE projected through '00 may be low given the expansion currently underway, Once all capital is producing this may/should increase IMO. Any suggestions to make the model better fit expectations would be appreciated. I'm looking for a target price of $28 within the year. Shane

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