Quick Look
Date: Apr 23, 2009
Growth: C+
Competitive Moat: D
Management: C
Financial Health: C-
Opinion: Almost too cheap to pass up, but competition remains a big risk.
Qiao Xing Mobile (
NYSE:QXM) is a holding company which conducts it's business through CEC Telecom, or CECT, an operating unit located inside the
People's Republic of China (PRC). The company is one of the largest domestic makers of cell phones in China, where effectively all revenues originate from. The company sells under two brands: "CECT" is the legacy and low-end brand, while "VEVA" is a high end, smartphone-like brand launched last May. The majority of units are sourced through third party manufacturers, although a fair number (15% in 2007) were self-manufactured, and this figure should rise as QXM opened a new plant in January of last year. In all, Qiao Xing sold about 3.8 million handsets in 2007, the last full year of data.
Let's take a look at Qiao Xing using the 3 points of investment, and then detail some specific risks. First, the growth picture. I've given Qiao Xing a C+ for growth potential. The Chinese mobile phone market is one of the most attractive in the world for several reasons. First is a low penetration rate, which should rise given China's universal service mandates for telecom providers and the fact that those living in small cities and rural areas are benefiting from the country's emerging economy, giving them the chance to purchase items like cell phones for the first time. When you apply these factors over a population exceeding 1.3 billion people, it's clear that the mobile phone market there will grow at attractive rates for the foreseeable future. iSuppli estimates nearly 8% growth in 2009 to about 239 million units, a good growth rate with clear and substantially more growth possible (China Mobile (CHL) has over 600 million subscribers alone). This new adoption demand is also buttressed by replacement demand to higher end phones (as in most developed economies), taking advantage of emerging technologies like 3G data networks and touch screen phones. Qiao Xing's VEVA line is poised to benefit from this. Growth is tempered by competitive concerns, however, which will be detailed below.
The second point of investment is financial health. Qiao Xing looks in pretty good shape here, with 2.9 billion yuan in cash (about $425 million USD) to 1.2 billion yuan in debt ($175 million USD). Most of this is in short-term notes, not really the most desirable way to finance a business. Short-term rates are higher and the debt is due in the near-term... as a result Qiao Xing's interest coverage ratio is less than great at just 7x.
