CREATIVE TECHNOLOGY
Trading Below Net Cash S$3.00-CREA.SI
1Q ended Sept ’08 loss of US$32.2mln was worse
than expected and compares with a profit of
US$1.3mln a year ago and US$31.7mln a quarter
ago.
The worse than expected performance reflects
investment loss of US$8.8mln, forex loss of
US$8.1mln and worsening global macroeconomic
conditions which resulted in a 23.5% yoy decline in
revenues to US$141.2mln.
Worse still, going into the company’s traditionally
strongest period of the year, management said that
the challenging global market conditions will likely
see revenues of only US$140-160mln for 2Q ending
Dec ’08, down a significant 43% yoy from last year’s
US$262.5mln.
The company generated US$5.97mln negative
operating cash flow for the quarter a reversal from
positive US$1.8mln last year, and after repayment
of debt obligations of US$100mln, capex of
US$1.69mln and share repurchases of US$7.773mln,
cash holdings declined from US$408.6mln to
US$280.87mln, nearly matching its shareholders funds
of US$288.4mln.
Financial position is robust with short term debts of
US$84.4mln and long term debts of US$29.8mln,
giving a net cash position of US$166.68mln. Current
ratio is a healthy 3x while quick ratio is 2.4x.
At S$2.61a share, market cap is S$223mln, which is
below its net cash of S$250mln and puts its price to
book at 0.5x. While business prospects do not look
too good, its depressed share price (stock trading
below net cash levels) and management’s focus on
cost reduction going forward coupled with strong
financial position, downside from here should be less
likely. Hence, Neutral seems more appropriate now
versus our long-time (since late 2004) Sell
recommendation
Trading Below Net Cash S$3.00-CREA.SI
1Q ended Sept ’08 loss of US$32.2mln was worse
than expected and compares with a profit of
US$1.3mln a year ago and US$31.7mln a quarter
ago.
The worse than expected performance reflects
investment loss of US$8.8mln, forex loss of
US$8.1mln and worsening global macroeconomic
conditions which resulted in a 23.5% yoy decline in
revenues to US$141.2mln.
Worse still, going into the company’s traditionally
strongest period of the year, management said that
the challenging global market conditions will likely
see revenues of only US$140-160mln for 2Q ending
Dec ’08, down a significant 43% yoy from last year’s
US$262.5mln.
The company generated US$5.97mln negative
operating cash flow for the quarter a reversal from
positive US$1.8mln last year, and after repayment
of debt obligations of US$100mln, capex of
US$1.69mln and share repurchases of US$7.773mln,
cash holdings declined from US$408.6mln to
US$280.87mln, nearly matching its shareholders funds
of US$288.4mln.
Financial position is robust with short term debts of
US$84.4mln and long term debts of US$29.8mln,
giving a net cash position of US$166.68mln. Current
ratio is a healthy 3x while quick ratio is 2.4x.
At S$2.61a share, market cap is S$223mln, which is
below its net cash of S$250mln and puts its price to
book at 0.5x. While business prospects do not look
too good, its depressed share price (stock trading
below net cash levels) and management’s focus on
cost reduction going forward coupled with strong
financial position, downside from here should be less
likely. Hence, Neutral seems more appropriate now
versus our long-time (since late 2004) Sell
recommendation
