Taitron Components Inc. – Q3 2016

NASDAQ:TAIT – 1,21 USD

1kr50öreTaitron Components Incorporated (Taitron) is a distributor of electronic components and supplier of original designed and manufactured (ODM) electronic components (ODM Components). The Company is engaged in the business of providing distribution and services for electronic components. The Company’s product offerings range from discrete semiconductors to electronic devices. The Company also offers engineering and services, focusing on providing contract electronic manufacturers (CEMs) and original equipment manufacturers (OEMs) with ODM services for their projects (ODM Projects). The Company offers ODM Components under the private label brand TCI through manufacturing partners. The Company’s products include Rectifiers, Diodes, Transistors, Optoelectronic Devices and Passive Components. The Company’s Taiwan and China locations provide support for inventory sourcing, purchases and coordinating the manufacture of its ODM Components and ODM Projects. – Google Times.

1. Adequate margin of safety (criterion a) or b) must be met): 

a)

  • P/NCAV < 1x
    • 0,66x 

&

  • EV/Operating earnings(5y&10y) < 3x
    • 5y =  N/A X
    • 10y = N/A X
      • Negative operating earnings 5y & 10y.

b)

  • P/NCAV < 0,75x
    • 0,66x

* I have adjusted NCAV to reflect the recent dividend of 0,03 USD per share.

2. The risk of permanent loss is low:

2.1 The risk of bankruptcy is low (criterion a) or b) must be met):

a)

  • Debt/Equity < 25 %
    • 7 % 

b)

  • Z-score ≥ 3
    • 3,2 

2.2 The company’s business model is not totally unprofitable (criterion a) or b) must be met):

a)

  • Positive retained earnings:
    • 4 M$ 

b)

  • Positive aggregate operating income for the last ten years:
    •   -7,4 M$ X

3. The company does not have a shareholder unfriendly capital allocation:

  • Shareholder yield TTM ≥ -2 %
    • Dividend yield TTM = +4,1 %
    • Net buyback yield TTM = +0,2 %
    • Net debt paydown yield TTM = +7,5 %
      • = +11,8 % 

Other notes:

  • NCAV-burn rate Qx – Qx-4 (YoY) and Qx – Qx-1 (QoQ)
    • Qx – Qx-4 = +0,7 %
    • Qx – Qx-1 = +0,1 %
  • The CEO (Stewart Wang) owns 61,5 % of the company.
  • Insiders together own 78 % of the company.
  • Worth of shareholding / salary + bonus
    • CEO = 7x.
    • Insiders = 8x.
    • See DEF 14A link above.
  • Other analysis of TAIT:
  • TAIT is a nano-cap stock: 6,8 M$ in market capitalization. The trading is very illiquid.

MoS

Disclosure: The author is long NASDAQ:TAIT when this analysis is published.

One thought on “Taitron Components Inc. – Q3 2016

  1. Once again I have made some changes to the net-net checklist. I will just briefly comment on these here:

    1. I have decided to remove the YoY and QoQ NCAV-burn rate > -25 % from criteria 1b. Instead of a fixed brun rate I would like to view the numbers in relation to the NCAV-MoS for each company. For example the YoY burn rate of STR Holdings (will post analysis next week) is 30,5 % but the NCAV-MoS is also 86 % (P/NCAV = 0,14x). Although not included in the main checklist anymore I will continue to post both the YoY and QoQ burn rate under “other notes”.

    2. I have decided to remove the debt-to-equity less than 50 % from criteria 2.1b. I consider a Z-score above 3 is good enough in order to conclude that the “risk of bankruptcy is low”.

    3. The new criteria 3 “The company does not have a shareholder unfriendly capital allocation” (shareholder yield) is replacing both the old criteria 3 “The risk of share dilution is low” and criteria 4 “The risk of fraud is low”. The main reason behind this replacement is that I want to remove myself from decision process regarding fraud risk (i.e. less risk of bias and broken leg problem in my net-net portfolio). By making sure that the current management does not take advantage of minority shareholders (net issuing debt, not paying dividend and net issuing new equity) I consider this a good quantitative measure for screening out companies where both the risk of dilution and fraud is high. In relation to my reasoning for using Shareholder yield I would recommend reading both Meb Faber’s book Shareholder yield but also a brilliant post from Alpha Vulture regarding fraud risk (https://alphavulture.com/2012/03/14/deswell-industries-dswl/). Because many net-net’s do not pay dividend, have no debt but do have a small stock option program I accept a negative shareholder yield of maximum -2 %.

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