Cyclicality at PC Partner (1263 HK)

Sales, margins and returns on capital recently skyrocketed …

This is not investment advice. Please read the disclaimer. I might own discussed stock(s) currently or at a later time. I might transact in any securities at any time.

PC Partner was sold off with NVDA, AMD, MU, and even more so. Fundamentals were weaker before the recent ‘excess’ profits and will likely be worse again.

At Oct 7th, 1263 HK trades at HKD 4.16 per share for a marcet cap of HKD 1612m. This is merely 50% of book equity (3,261m) as of June 30. In between, the company paid out dividends of 934m as of June accounted in trade and other payables, thus the book equity value was not impaired by the divi payments, but cash was reduced, from 2,997m to 2,063 (before any earnings since July 1st).

I assume that profitability since July 1st did not fall back to historic levels of close to zero net margins, but it might soon. And, as was beautifully explained in Quality of Earnings, high inventory levels are problematic, especially so in tech.

Whereas the liability side offers basically no upside, the asset side offers downside (inventory, receivables). One big receivalbe was completely written off, due to a big financce component within a sales deal to a crypto related business, which stumbled over changing regulations (any received money is upside, but probably unlikely to happen/be material).

Anyway, PC Partners kept a big cash pile and about 1bn of debt on its books for many years, thus neither a liquidation nor highest possilbe dividend payouts are to be expected. With volumes and margins coming down, it is not cheap enough, yet …

Further reads


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