Our recent conversation with Karin Technology’s (Karin) management revealed that its Components Distribution business has continued to pick up momentum. This is due to the proliferation of lower-end smartphones in China, resulting in stronger distribution volume of connectors used in these smartphones for Karin. Management is also focusing on growing its higher-margin IT Infrastructure segment. This has been boosted by robust demand for network security solutions and enterprise software products. Meanwhile, we expect Karin’s Consumer Electronics Products segment to remain as its largest revenue contributor, as Apple is still one of the most dominant players within the mobile devices space despite growing concerns over slowing iPhone sales. While we like Karin’s solid dividends payout track record as a means of rewarding its shareholders, we are CEASING COVERAGE on the stock due to a reallocation of resources and a lack of trading liquidity in its shares.
Component Distribution business gaining momentum
Our recent conversation with Karin Technology’s (Karin) management revealed that its Components Distribution business has continued to pick up momentum. This is due to the proliferation of lower-end smartphones in China, resulting in stronger distribution volume of connectors used in these smartphones for Karin. Research firm IDC forecasted that smartphone shipments to China would grow at a CAGR of 11.0% from 301.2m units in 2013 to 457.9m units in 2017. Management is also focusing on growing its higher-margin IT Infrastructure segment. This has been boosted by robust demand for network security solutions and enterprise software products despite the weak macroeconomic environment. Market watcher Gartner Inc. reported that worldwide security software revenue registered a 7.9% growth in 2012 to US$19.2b.
CEP segment to remain as largest revenue contributor
Meanwhile, we expect Karin’s Consumer Electronics Products (CEP) segment to remain as its largest revenue contributor. Although there has been growing concerns over slowing iPhone sales by Apple, it is still one of the most dominant players within the mobile devices space. In our view, the possible launch of a new low-end iPhone model, next generation iPad and iPad mini will likely benefit Karin.
Proud dividends payout track record
Karin has established a solid dividends payout track record as a means of rewarding its shareholders. Over the last five financial years (FY08-FY12), Karin’s declared DPS ranged from HK$0.082 to HK$0.141, translating into payout ratios of 43.5-66.2%. We believe that total FY13F DPS may amount to HK$0.15 (interim DPS of HK$0.072 already declared and paid), which implies an attractive yield of ~7.5%.
Ceasing coverage
However, due to a reallocation of resources and a lack of trading liquidity in Karin’s shares, we are CEASING COVERAGE on the stock.
Our recent conversation with Karin Technology’s (Karin) management revealed that its Components Distribution business has continued to pick up momentum. This is due to the proliferation of lower-end smartphones in China, resulting in stronger distribution volume of connectors used in these smartphones for Karin. Research firm IDC forecasted that smartphone shipments to China would grow at a CAGR of 11.0% from 301.2m units in 2013 to 457.9m units in 2017. Management is also focusing on growing its higher-margin IT Infrastructure segment. This has been boosted by robust demand for network security solutions and enterprise software products despite the weak macroeconomic environment. Market watcher Gartner Inc. reported that worldwide security software revenue registered a 7.9% growth in 2012 to US$19.2b.
CEP segment to remain as largest revenue contributor
Meanwhile, we expect Karin’s Consumer Electronics Products (CEP) segment to remain as its largest revenue contributor. Although there has been growing concerns over slowing iPhone sales by Apple, it is still one of the most dominant players within the mobile devices space. In our view, the possible launch of a new low-end iPhone model, next generation iPad and iPad mini will likely benefit Karin.
Proud dividends payout track record
Karin has established a solid dividends payout track record as a means of rewarding its shareholders. Over the last five financial years (FY08-FY12), Karin’s declared DPS ranged from HK$0.082 to HK$0.141, translating into payout ratios of 43.5-66.2%. We believe that total FY13F DPS may amount to HK$0.15 (interim DPS of HK$0.072 already declared and paid), which implies an attractive yield of ~7.5%.
Ceasing coverage
However, due to a reallocation of resources and a lack of trading liquidity in Karin’s shares, we are CEASING COVERAGE on the stock.
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