The Company sells hundreds of types of chips, from standard
"off-the-shelf" chips to high-tech microprocessors. "Off-the-shelf"
chips include various general purpose computer and memory chips. The
group of custom and semi-custom chips, which includes ASIC's
(application specific integrated circuits), programmable logic devices,
standard all components and chips with gate arrays. The Company supplies
over 1,000 customers in Hong Kong and China.
In Hong Kong the
Company represents, either as distributor or agent, several of the
world's largest semiconductor manufacturers. The Company has done
business with Texas Instruments of HK for over 14 years. TI HK supplied
approximately 63% of the Company's computer chips in the year ended
12-31-94. The Company also is supplied chips by Trident Microsystems,
Zilog, Inc. SEEQ Technology, Inc., Quality Technology, Inc., and
Integrated Circuits Systems. The Company has exclusive rights to
distribute the TI line of chips in China. The seasonal cycles in the Company's business are related to the
seasonal cycles in the electronics business generally and the types of
finished products made with chips supplied by the Company. Sales of the
Company's chips generally increase from April through October, as the
manufacturers of consumer products increase their production in
anticipation of the Christmas holiday season. Sales of the Company's
chips used in computers are steady throughout the year. The Company's other business segment involves the distribution of golf
carts, irrigation products and systems, fertilizer and turf equipment to
golf clubs in Hong Kong, Macau and China.
Press Release - August
25, 1995 During the first six months of fiscal 95, the Company experienced significant growth - 75% in revenues from semiconductor business. The increased demand for semiconductors, especially memory products used in personal computers is the main factor for this growth. The Company has set up a network of branch offices and retail operations in five locations (Beijing, Shanghai, Nanjing, Guanghou and Shenzhen) to ride the tide of China's growing demand for semiconductors, especially CPU's used in personal computers and other related products. It is forecasted that during 1996 that China will experience a significant growth in computing demands in the public and private sector.
Chart A demonstrates an interesting as well as compelling comparison of
our new recommendation - EPLTF and four other companies that are much
larger, but primarily are in the same business; that is, the
distribution of semiconductors. It is easy to conclude that the average
PE multiple for MI, PIOS, AVT and ARW equals 14x, with the average PSR
(price to sale ratio) equates to .48 or 48% of sales. If our choice
recommendation was to sport multiples in line with its peers, it would
be quite evident that EPLTF is extremely undervalued. If EPLTF was to
sport a PE multiple of 14x versus 7x, its share valuation would equal
$3.50. That is at least double the current price. If EPLTF was to mirror
the average PSR of our select group and sport a similar value of 48% of
revenues, then our selection would be priced at $3.50. It is in our opinion that the valuations might be too conservative.
Here's why! Upon review of Chart 1 it is easy to conclude that our
revenue estimate for 1995 yields a 40% growth rate over 1994. (Note:
Management is very conservative - keep in mind that the second half is
stronger than the first half as stated in the recent 10k). In our
opinion, revenues could exceed $50 million for 1995. If we were to assign a PE multiple that represented half of EPLTF's
growth rate; that is, a conservative 40% and a more aggressive rate of
50%, then we can assume that EPLTF should trade at around 25x. If we
conclude that earnings for fiscal 95 equal .25 on the low side and .35
on the high side, then a very different price scenario emerges. If
EPLTF were to sport a PE of 25 and earnings equalled .25 and .35,
respectively, then our share valuation would equal $6.25 and $8.75.
During 1994 the
distribution sector of the electronics industry posted strong growth for
the third consecutive year. Distributors' sales increased an impressive
25% in 1994. This value in our opinion adds more ammo to why we can feel
comfortable using a PE multiple of 25 for EPLTF in our evaluation. More food for thought! The SIA (Semiconductor Industry Association) in
its semiannual forecast on May 16, 1995, raised their 1995 world chip
growth forecast to 40% ($142.3 billion vs. 1994's $101.9 billion). Another indication why not only EPLTF should trade at higher
multiples, but the whole group. According to Dataquest, the market for
semiconductors will expand at a rate of 20+% to the year 2000 in the
Asia Pacific region. Remember that EPLTF distributes to Hong Kong and
China (China's potential is obviously enormous).
Why should you own
EPLTF (NASDAQ Small Cap)? 1. Very few opportunities exist for small investors to buy shares in companies that are off- shore. EPLTF based in Hong Kong primarily does business in China (a huge emerging marketplace for computers, peripherals, telecommunication equipment and consumer electronic gear). Extremely Bullish.
2. The overall growth potential for Asian companies is far superior than North America and Europe. Extremely Bullish.
3. Fundamentally speaking, EPLTF trades at a sizeable discount with respect to its peers - very low PE and PSR value. As of June 30, 1995, EPLTF had .67/share in cash, only 144k in long term debt - growth should exceed 40% during 1995. Extremely Bullish.
4. There are only 6.5 million share outstanding with management controlling around 45%. Extremely Bullish.
5. Anticipate listing on NASDAQ's National Market System by year's end and start to report quarterly earnings results versus semiannual. Extremely Bullish.
6. Has a secure business relationship with world class giant Texas Instrument of HK to supply all chip needs to China. Extremely Bullish.
We believe that during the next five years based upon the expected growth rate of Pacific Rim area, which, of course, includes China, that EPLTF could easily exceed $120 million in revenue growth on the conservative side based upon a growth rate of 20%. It obviously could be substantially larger than that due to additional acquisitions of product lines or whole companies. The kicker that we spent no time discussing is EPLTF's golfing division. This division has the potential to blow all of our estimates away and give us the best hole-in-one that an investor ever dreamed of.
In our opinion, this situation over the long term has the potential to
be a $15 - 20 stock. Obviously, things have to go right, but when you
consider the most recent 18 months of growth, it is in our opinion that
EPLTF is on the fairway to success. We believe that this situation
belongs in all diverse emerging growth portfolios that would like some
international exposure in the area of world that promises huge rewards
for the patient investor.
EPLTF offers investors discounted fundamentals, high technology and
China. Even if you are brain-dead, you should own some. We will be
monitoring 10k shares in our model portfolio for percentage gain
performance. We will also monitor EPLTF in our international and 900#
portfolios. Corporate
Contact: Chris at 303-292-9419, FAX 303-292-2183; Corporate Headquarters
Hong Kong: 011 852 24816022; Broker Contact: Mike Chesler at
1-800-331-1355; Greg Nelson at 1-800-453-9408..
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