Nam Tai Electronics (NYSE: NTE) is an interesting company. It is a Chinese manufacturer of electronics, basically a contract manufacturing company. The curious thing about Nam Tai is that it has a market cap of about USD 192M, short term debt of USD 1M, no long term debt. As of end of Q1 2009, it has USD 230M in cash and cash equivalents. What we have here is an impossible event under efficient market theory. There is no way that a company can sell under its cash value. Hey... but here it is!
Furthermore, if you look at its competitors Jabil Circuit (NYSE: JBL) and Flextronics (NASDAQ: FLEX), both are trading way above book value. JBL's price to book is 1.28x. FLEX is trading at 1.83x book.
My investment thesis is simple: NTE is a good value play because it is trading way below its book value, even under its cash value. There is no good reason for this occurrence. The fact that it is trading under its cash value offers the necessary safety margin.
Risks - The way I see it there are 2 major risks. First, accounting fraud. The company doesn't have as much cash as it says on the books. This is a possibility, witness Satayam. NTE's CFO has just resigned (9 Mar 09), replaced by the company's founder, Mr Koo. Second, this downturn continues for an indefinite period, burning through NTE's cash reserves.
If you have any questions or comments, either post it on the blog or email me at shaunhhh@gmail.com.
One final comment, I own NTE stock.
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