CDW, not for the faint hearted

It was almost a year ago when CDW was involved in unauthorised bank transfers and as Deloitte was not able to obtain sufficient appropriate audit evidence to clear their doubts so, Qualified opinion was issued on its cashflow.  However, Deloitte gave Unqualified opinion on CDW's statements of financial position and statements of changes in equity, the consolidated income statement and the consolidated statement of comprehensive income. 

Also in 2011, there was a slight uproar an one-off increase on combined fees for CDW independent directors was raised from S$220,000 to S$400,000.  It was explained that the increase in Director’s Fees is not a reward, but due compensation for the considerable time and effort spent by the independent directors in attending additional meetings to resolve issues arising from the unauthorised fund transfers episode.

Fast forward into 2012, CDW made announcement on 28 Feb on changes to the board of directors / key appointments.  It is part of the succession plans at CDW.   

In its full year results announcement made on 28 Feb, CDW recorded 42.1% increase in revenue, primarily from its LCD Backlight Units business segment.  But  in January and February 2012, CDW experienced lower sales due to production delays for certain large order due to a "technical" problem at customer's end.  Though the technical problem is resolved, its first quarter results will be materially impacted. CDW promised to issue profit warning for the first quarter’s result if it is deemed necessary.

Gross profit grew 25.8% but there was slight drop in gross profit margin by 2.6 percentage points to 20.1%.  Over the years, CDW gross profit margin has been in the 20% range.   Selling and distribution expenses increased in line with an increase in sales.  Administration expenses increased due to costlier operating costs in the PRC and the appreciation of the Chinese renminbi and Japanese yen as compared to the United Stated dollars, and partly due to the increase in headcount and salary-related expenses in the PRC and Hong Kong operation which was in line with the increase in sales.  Finance costs remained at a low level due to CDW low gearing policy and the low interest rate environment.   CDW also maintained bank loans at a low level and in fact has unutilized banking facilities which could be deployed for expansion where necessary.  CDW spent on capex to acquire new machinery to replace old ones in order to improve overall efficiency in the production of LCD Parts and Accessories and Office Automation equipment.  All in, CDW net profit increased by 37.2%.

Net Cash position in 2011 US$45.5 million (2010 : US$37.7 million).  Higher inventories due to increasing sales of LCD backlight units and the postponement of mass production of certain parts in LCD Parts and Accessories segment. Debtor turnover days improved to 43 days as a result of increasing sales to customers with shorter credit term but in general, there is no material change in the credit term to customers.  
One big risk, revenue from one key customer which has transactions with all segments accounted for 77% (FY2010: 70%). As mentioned in the above, this has already caused its January and February sales to be affected.

In order to secure borrowing at low interest rate, CDW arranged a fixed interest three-year term loan in 2011. The bank loans reduced to US$13.9 million.  The trade payables increased to US$27.6 million, which was consistent with the rise in the revenue; there was no change in the suppliers credit terms.  Other payables and accruals, comprising accruals for expenses and wage payables, were increased by US$0.7
million to reflect the rising labour costs in the PRC.

EPS of USD 0.94 cents at 31 Dec 2011 (2010 : USD 0.68 cents).

CDW last done price on 16 Mar SGD 9.5 cents.  Its 52 weeks high and low, $6.5 cents on 10 May 2011 - $10.1 cents on 22 Feb 2012.

NAV as of 31 Dec 2011 - USD 12.13 cents  (2010 : USD 11.02 cents)


CDW has been consistently paying USD 0.3 cents semi-annual dividend for a few years now.

-end-