To Produce Value?

TPV Technology Limited is engaged in the design, manufacture and sale of computer monitors and flat television products. With its lost costs production facilities in PRC, TPV sells mainly to Europe, North and South America, China and other Asian countries.

Market Leader
Having acquired the monitor and flat screen tv business of Philips in a business-for-equity swap, TPV is now 15% owned by Philips, and 22% owned by China's BOE Technology, its largest shareholder. With the Philips acquisition, TPV also became the world's largest PC monitor maker, focusing on CRT monitors, thin film transistor - liquid crystal display (TFT-LCD) monitors, LCD and plasma televisions. During the year ended December 31, 2005, of the Company's display shipment, TFT-LCD monitors totaled 17.7 million units, CRT monitors totaled 11.2 million units, and LCD televisions totaled 644,000 units.

Performance and market outlook
Helped by the acquisition of Philips' monitor business, TPV posted a 14.4% rise in first-half profit on Sept 12, 2006. However, the outlook for TPV is overshadowed by intense competition, with regional rivals Au Optronics Corp and LG Philips LCD Co Ltd predicting in July a further slide in panel prices despite rising shipments, and many analysts not expecting a turnaround before the end of the year.

Prices for LCD panels, which are the key component of thin-screen PC monitors, began to stabilise in mid-2005 as more people bought monitors based on the technology and LCD TVs gained popularity.

Intense competition
More than 3 years ago, Hon Hai Group's (鴻海) expansion into the already crowded and highly-volatile flat-panel industry with the creation of Innolux Display Corp (群創光電) drew widespread skepticism among most industry insiders, despite the electronics component giant's strong cost-saving abilities.

Innolux, the David of LCD panel maker with initial paid-up capital of NT$21.1 billion/US$640 million, competed with Goliaths whom possessed large-scale capacity and having two or three times as much capital (including TPV). Nevertheless, Innolux got into the black in its second year of operation, with annual revenue reaching NT$51.4 billion in 2005. Innolux earned NT$406 million, or NT$0.21 per share last year according to the company's filing to the exchange. Innolux aims to double its revenue to NT$100 billion in 2006.

Innolux has ambitions to beat industry leader TPV by grabbing a 40 percent market share in 2009. Competing as a price-disruptive competitor, Innolux's price aggression may actually consolidate the monitor market to 3-4 dominant players and may be a long-term positive for TPV.

InnoLux(3841TT) IPO-ed on the Taiwan Stock Exchange on October 24, 2006. With the IPO price of NT$40, Innolux closed at NT$55.60 today, giving it a P/E of 265.

Light at the end of the tube/tunnel

Market segment I - LCD monitors
Market share - 23% post Philips acquisition
TPV is on track to ship 28m LCD monitors in 2006 with flat or slight lower gross dollar margins in 3Q06. For 2Q06, TPV shiped 6.5m LCD monitors, +67% YoY and +23% QoQ. Although LCD monitor panel prices declined by 20% in 2Q06, TPV maintained its gross dollar profit at US$9.4 per piece based on its experience in dealing with the dynamic pricing environment.

Market segment II - LCD TV
Market share - 6% in 2Q.
TPV is expected to ship out at least 2.5m LCD TVs in 2006. Gross dollar profit for LCD TV was a miserable US$4.7. The LCD TV business was in the red, attributed to the launch of new models which would require close to 2 years to stabilise.
Greating contribution of 37" and above LCD TVs is expected to improve gross dollar profit in 2H.

Market segment III - CRT monitor
Market share - 37% in 1Q06.
TPV further consolidated its position in the CRT monitor industry and gained 1.5% market share from 1Q06. Relatively stable segment, TPV should continue to do well in the CRT market.
Company Financials
TPV repaid US$146m in short term bank loans in 2Q06 with its excess cash. With the lower debt level, TPV's finance costs is cut by US$2m every quarter.

Insider Trades
TPV share price has hit a 52-week low ($1.04 today) on the SGX. Despite the STI hitting record highs, TPV has sunk lower. Even the purchase of 9,500,000 shares by Dr Jason Hsuan in Mar 06 at $1.85 did not prevent the erosion of the share prices. The CEO putting in US$10 million usually signifies strong beliefs in his company but the share prices have not responded accordingly. Co-incidentally, 3 other directors Chen Yanshun, Wang Yanjun and Wang Dongsheng have been constant sellers since Mar 06.

To Produce Value?
TPV looks highly attractive now. With NAV at S$1.25, it is trading at a 15% discount. At a historical PE of 5.9, and dividend yield of 4.2%, the IHs must be pulling wool over the Graham wannabes' eyes. Compared to Innolux (with astronomical PE of 265), I say I smell value.

Caveat emptor.