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Technology Stocks : Deswell Industries (DSWL) -- Ignore unavailable to you. Want to Upgrade?

To: Ron Bower who wrote (519)	3/1/1998 1:53:00 PM
From: mod	Read Replies (3) \| Respond to of 1418

In the "better late than never" category, here are my notes from the Deswell annual meeting in NYC last September, which I posted elsewhere but not on SI at the time. I thought they might be of interest to some, even though some of the discussion at the meeting (Nam Tai, warrants) turned out different. ----------------------------------------- Subject: Re: Annual meeting Date: 9/30/97 10:38 PM Eastern Standard Time Some random notes from the DSWLF annual meeting: Representing Deswell were Mr. Lau, Mr. Seung and Mr. Lam. There were a couple of PR guys there too, and a grand total of 4 shareholders. Actually, 5 shareholders, since Mr. Koo of Nam Tai was there too. Brief presentation by management, nothing new. Here are some notes from the Q&A session: Currency fluctuations in Asia have not affected, and likely will not affect Deswell, as they are paid in HK$ and US$. China and HK have a massive amount of US$ to defend the HK$, so they do not believe there will be any problems. Kwanasia (electronics) is expected to grow faster than Jetcrown (plastic injection molding). More factory space is expected to be needed in 1999, especially for Kwanasia. (There was a comment about seeking approval for a 250,000sf facility for Kwanasia in Dongguan, but I'm not sure if it's been approved by the government yet.) New customers include Harmon International (audio equipment) and V-Tech (cordless phones). Relations are strong with existing customers. (as evidenced by the presence of Mr. Koo from Nam Tai) Customers care more about quality and dependability than just low cost, so no pressure on Deswell margins. Deswell tries to help redesign components to lower production costs, and passes on some of the savings to the customers. Deswell will be developing a web page, as part of their marketing efforts. Behringer has set up a joint venture to sell audio equipment in China. Their sales are expected to double by 1999, resulting in increased business for Deswell. No plans to redeem warrants at the moment. On a side note, refreshments were inferior to the Nam Tai annual meeting. All they had was coffee and water. Not even a soda or a bowl of pretzels. As a shareholder, I am glad they watch their expenses, but next year I'm going to bring my own refreshments. :-) ------------------------------------------------------------

To: Ron Bower who wrote (519)	3/1/1998 2:38:00 PM
From: mod	Respond to of 1418

I am putting together a spreadsheet to compare DSWLF and HIHOF, and in the process developed some projected numbers for DSWLF that I thought I would share for comment. Q4 is usually somewhat weak, because of the Chinese New Year shut down. Looking at past years revenues and margins, I came up with revenues of $18 million, gross profit of $7.6 million, and net profit of $3.6 million or $0.65/share. This would be up 52% from the previous year, and would give a full year EPS of $2.54, which results in a trailing p/e of 8 at the current price of 20 3/8. For FY1999 (which starts 4/1/98), I increased revenues by 40% (below their recent growth rate) and kept the same margins (which have been fairly steady for several years), resulting in projected earnings of $3.55/share, or 5.7x current price. I believe DSWLF will always tend to trade at a below market p/e (because of their tax situation and foreign location), but think a trailing p/e of 12 would be conservative, resulting in a price target of $42/share in a year. Dennis