“Asia Pacific Wire & Cable (APWC) remains our stock pick for 2012 and beyond. As mentioned in our prior recommendation, APWC manufactures and distributes telecommunication (copper and fiber optic) and power cable and enameled wire products in the Asia Pacific region, primarily in Thailand, China, Australia and Singapore. The auditor remains Ernst & Young and APWC is based in Taiwan (not China).
“During the fourth quarter of 2011, a major disaster occurred in Thailand that severely altered the results for Q4 of 2011 and Q1 of 2012. It has obscured the real financial picture and future growth potential of the cheapest stock in Asia! If you review the year-end results for APWC, you will see that in reality it earned $0.46, instead of posting a loss of $0.39! The flood in Thailand caused the parent to write off total goodwill of over $8 million dollars (resulting in a loss of $0.57) and a $4 million loss ($0.28) related to the severe flooding. This one-in-100-year event caused a 2011 loss of $0.39 on revenue of $472 million.
“During the first quarter of 2012, revenue was still affected by the closure and contracted to only $98 million, with net income per share of $0.06 (again, another $700k charge relating to the flood — without this charge APWC would have earned $0.11!) We still believe that APWC will sport revenues of at least $450 million for 2012, and earnings could easily reach $0.50 per fully diluted share (13.8 million fully diluted shares outstanding).
“The balance sheet is remarkable: cash equals $5.18 per share and the total book is $16.00 per share! Even though the world economy appears to be slowing, the Asian marketplace will still easily outpace the rest of the world and most likely will show high single-digit growth for the balance of 2012 and into 2013. You have a stock that trades at a fraction of book (20%) and around 60% of cash. We believe that APWC could easily be bought out by a much larger company on the cheap and could easily be taken private at much higher prices.
“We have been involved with APWC for the past few years and have the patience for the big score! In our opinion, APWC is worth at least $10.00 — a far cry from the currently depressed levels of $3.00. At present the company has announced that Thailand is at full production and the total flood expense will be covered by insurance. During the next few quarters we anticipate extraordinary gains will be announced because of insurance claims paid by the insurance carriers. Finally, we see almost zero downside risk during the balance of 2012, with very strong appreciation potential during the next six to 18 months. If you like fast action and overpriced valuations, buy Facebook (FB), but if you want a real diamond in the rough, APWC is the jewel of Asia!”
- William Velmer, S.A. Advisory, July 5, 2012