Powermatic Data System

We profile ECS and Multi-Chem, two IT products distributors recently about their weak recent results.

Multi-Chem yields 8.6% with no debts while ECS holdings yield 4.7% with debts.

Today, took a look at a WIFI networking manufacturer Powermatics Data Systems that provide a 6.6% prevailing yield for the past 4 years.

From the FY2012 annual report Powermatics look great:

  • Market Cap: 26 mil
  • Cash: 20 mil
  • No debts
  • Free Hold industrial property leased out last valued at 18 mil
  • 6.6% yield

A look at recent FY2013 annual report showed otherwise:

  • Cash fell to 17 mil
  • No debts
  • Free Hold property still around 18 mil
  • FY profit fall from 1.8 mil to 0.6 mil

That looks bad on paper. It confirms a subtle trend that all these distributors are facing headwinds in the industry.

While Multi-Chem did not have a fixed distribution policy, so does Powermatics Data Systems.

However, Powermatic need 1.7 mil to pay their 1 cent dividend, which they been paying since 2008.

Still, this highlights 2 things:

  • Having a cash holding of 17 mil should provide ample  cushion to pay for many 1.7 mil dividends.
  • You probably cannot think that way. A lot would think that with a cash holding like that in good times,  it provides much safety. These cash are set aside for working capital and in times like these, they are dug in to finance receivables, inventory and dividends. The cash dropped in this case and under a prolong industry down turn we can very well see this end up as 10 mil.

Bottom line, paying a dividend less than free cash flow or earnings indicates certain conservativeness.

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  • Neilgoose

    Can’t quite use the word “yield” in this case here. To me, “Yield” occurs when the asset is generating income to distribute to shareholders. Over here in PM Data, they are not quite generating much income to distribute. They are distributing their cash hoard , ie… the NAV. And since its a rather big amount of cash in the Balance Sheet, we are also at the mercy of these towkays in there to be fair to minorities. The major risk to me is that the towkays will start doing somethg funny with the cash hoard. Why share with minorities when they have absolute control over what to with the money?

  • http://www.productiveorganizer.com/ Kyith

    Its not all that they are distributing cash holdings. They do have a business that is generating profit in this case their networking equipment and distributor business