LongCheer :: Highlights to Make

Generally for handset designers and makers, the 3Q is the strongest and the 4Q is the weakest. LongCheer achieved 81% QoQ increased gross profit which is impressive. YoY gross profit increased 123%. I expect competition to intensify and gross margins might dipped a little. It has maintained a good cash position of RMB450 from RMB 429.9M previously mentioned. Trade receviables decreased 17% to RMB 41.1 M.
Inventory turnover improved to 19.7 days from 26.5 days which is huge improvement, I would like the the inventory turnover to improve further. As highlighted before, staffing has increased further to 700 at the end of FY2006, no comments.


“We expect the mobile phone market to remain buoyant in the financial year ahead. Given that mobile phone penetration rates remain low and replacement demand is becoming increasingly high, we maintain an optimistic outlook on the Group’s prospects. Now that we have established a strong presence in the Chinese market, we are well-positioned for a new level of growth in the overseas market as well,” commented Mr Tao.


My Investment Philosophy

I would seriously like to see LongCheer venture overseas out of its doors to North America or Europe just like TechFaithWireless.LongCheer had a collaboration with a local company for a certain Linux PDA smartphone model. Apparently, we are not receiving more positive news from this company. Well.(FYI: I tried smartphones built on different platforms for comparison, and my ratings are Windows, Linux then Symbian OS.)

Some people highlighted the fact that the management has stated that FY07 will be moderate. I had to say management was wise to lower shareholder expectations as such rapid growth is simply too good and difficult to substain. I remain higly optimistic on LongCheer.


By current price, PE ratio is a low single digit of 7.2, strong cashflow position, expanding R&D staff force, ambitious management, leaders in its own industry, building up higher barriers of entry by vertical expansion and acquiring edge technology, implementing 3G network and style conscious Chinese consumerism.

Based on my DCF model, eps growth rate of 20% and discount factor of 5% which yields an instrinsic value of S$1.93 which is 16x PE ratio which is more in line with its peers PE ratio of 15 to 20.


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Cheers
Niversphere.

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Please read the prospectus and perform your analysis before making any investment decision. The above does not constitute a recommendation to apply for this company. I will not be liable for any losses incurred by anyone who invests based solely on the above-mentioned information.