No. of Recommendations: 0
The first company I'll be breaking down is Trio-Tech International (TRT). All numbers relevant to the company and marketplace were taken on the day that I was researching the company, and their last annual report: 7/13/16. A

Market Cap: $10.52m
Book Value: $20.70m
% Discount: 49.27%
P/E: 11.58

Trio-Tech International is in the Semiconductor Equipment & Materials Industry within the Technology Sector. They employ 599.

TRT is made up of 4 major segments: Manufacturing, Testing, Distribution and Real Estate. These segments produce the following business for the company, respectively: 37.9%, 53.1%, 8.5%, .5%.

While TRT is testing their manufactured front-end and back-end semiconductors they also rent their testing facilities out as a 3rd party. This allows for a scenario where the more business they create in this segment the larger the operating margin (the fixed expenses are covered and the variable expenses almost non existent).

The real-estate segment consists of the company trying to expand in rental properties (a weird area to expand to I think).

The company distributes products targeted for industrial customers with life cycles of 3-7 years.

They have three large customers who comprise of 70% of their total revenue, although they don't specify who these companies are.

Something weird that TRT does which makes me downgrade the stock is they leave the "Risks" section of the 10-k blank, this is the first time I've seen it done.

The 4 segments produced the following inc/(loss)
'15 '14
Manufacturing: (426) (761)
Testing: 1955 984
Distribution: 23 232
Real Estate: (129) (93)

The manufacturing increase was due to decreased expenses from the gain on sale of PPE, decrease in R&D (which they stated they expect to go back).

Testing increase was also due to decreased expenses from the gain of sale of PPE.

They also made a note about how in 2014 they created a reserve account for future doubtful accounts which they charged against expenses for the year, this is not something that I like to see done usually.

As you can tell, a big part of the increase in income was due to the sale of PPE. I found it weird that this company charged a one time sale to annual expenses, but when looking at their history of reporting operating income this seemed to be a common doing.

When taking out any one time sales/expenses from the companies operating income I came up with the following Operating Income/(loss) for years 2011-2015:

'11: (733)
'12: (2843)??(4296)**
'13: (917)
'14: 8
'15: 1108

** The loss from operations changed by nearly 2000(!) in the 2012 to 2013 10-K. I looked for a reason in the 2013 10-K but found nothing, and of course they don't have a number or email for investor relations (that I could find).

Some other things I found to be weird: I'm not sure if the company double counted the changes in operating expenses due to the sale of PPE. The cost of sales decreased by 13%(!) without any explanation and the gains from sale of PPE was added separately.

At a 41% discount, with increasing cash flows and earnings that seem to be stabilizing (1108 NI from Operating Expenses excluding Gain from sale of PPE) this company seems like a value play, but their 10-K seemed sloppy and there's a lot of information missing including company risks.

What are your thoughts?


Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.