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

To: kolo55 who wrote (770)	5/29/1998 12:46:00 PM
From: Ron Bower	Read Replies (2) \| Respond to of 1418

Some thoughts I put together last night. I'm usually the one of the more optimistic (one need only look at my last projection post), but the report and events in Asia have made me a little more conservative. Some of my thoughts -sorry in advance about the length. The explanation given that Kwanasia's revs fell off because of a big push in the 2&3 Qs is reasonable because these two Qs are in the prime selling season for some customers. However, I feel it also indicates that the circuit board business has come under pressure, not so much because of competition, but a general shortage of orders throughout the sector due to the OEMs reducing inventories. In a few months, perhaps weeks, the inventory levels will stabilize and the orders will again increase to prior levels. We should see some growth in the 1st Q, even more in the 2nd, and a large increase in the 3rd when the new Kwanasia facilities will be on line. Jetcrown showed excellent growth and probably was most of the profits for the Q. While Namtai is still buying from Deswell, the percentage of sales to them should have continued to decline. The report says that VTech has reached 8% of revs 'at their current run rate' from nothing a few months ago and I expect them to be an even higher percentage this Q. Mita may have declined a little due to inventory reduction, but I see that Mita has gotten more aggressive in their advertising and they may be ready to make some strong gains in the US and Euro markets due to the currency values. Reports I read indicate that the plastics sector has high projected growth and I expect Jetcrown to do very well in '98. Kwanta is less than 10% of current revs but growing fast. They could contribute as much as $2M (15%) or so to earnings this coming year versus a loss in all of '98 except the last Q. Overall, I don't think it's possible for them to achieve the growth of '97, but I don't think 30% would be optimistic going forward. Over $3.00 EPS would be conservative IMO. I can think of 4 good reasons to own Deswell. The financial condition of the company, the probable growth, the good dividend return, and the likelihood of Deswell being acquired by one of the large ECMs now operating in China. (The one down the street from them comes to mind. This would make Paul very happy.) I suggest this because Deswell's strong cash position, high tech plastics and circuit board operations, and growth history make them a very attractive target for a company interested in expanding thru acquisitions. The very light trading since the report came out indicates (IMO) some margin covering and bargain hunters. It also indicates that most of us owning Deswell believe in the company and are willing to hold or add to our positions. One 10K market order would likely push price much higher. Barring more bad news from Asia, we should see a substantial increase pre-dividend. Investors are beginning to realize that the 'Asian crisis" does not necessarily include China. JMHO, Ron