No. of Recommendations: 3
Hi everyone,

Release: http://sec.gov/Archives/edgar/data/829365/000095012311048419... (includes 2011 proxy statement at the end)

So NamTai Electronics holds a mid-level position in the MUE port with shares purchased twice, and has been one of the worst performers, currently sitting at -24.90% and -14.89%, at $5.43 per share.

The first quarter continued revenue growth seen last year, with 104% YoY growth to $161.9 million and the company turned a profit of $244 thousand in operating income and $2.02 million in net income. The difference is some below the line stuff like interest income of $0.6 million, a currency exchange gain of $0.4 million, and use of a deferred tax credit to the tune of $0.9 million. All of those are non-operating, so should basically be ignored.

The growth in revenue is good, as is lack of any effect from the Japanese earthquake for the first quarter. Unfortunately, that's the extent of the good news.

Bad news:
• Gross margin ticked down 313 basis points (bps) on increased labor costs and no longer producing higher gross margin products for such as Bluetooth headsets and calculators.
• The land dispute with the local government remains unresolved, so it cannot begin to use the land it's purchased.
• The company is dependent on supplies from Japan and it will be significantly affected in the current quarter and for the rest of the year.
• Inflation and appreciation of the renminbi (and worker demands) will increase labor costs going forward.

Further, it paid out all of its net income ($0.05 per share) as a dividend this quarter and is committed to paying out $0.10 per share more over the rest of the year. Comments under the dividend table are signaling, I believe, that this will be either cut or eliminated when the board considers a dividend for next year (and it wouldn't surprise me to see it cut earlier).

All in all, not a good situation and I believe this to be riskier than a 4%, mid-level position justifies. I will be selling one of the two positions this week. I will wait for the results of Q2 (on Aug 1) before deciding on whether or not to keep the other position.

Cheers,
Jim
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