Contel

Contel: in the latest news flow announced last wk, Contel proposed to acq Update Electronic, which is a HK firm engaged in the trading of LED related electronic pdts. The Vendor, Mr Li Yuda, has represented that he has been in the business for 12 yrs and has the agency to distribute LED in the southern part of China for one of the largest LED makers in the world, Everlight Electronics. Update Electronics posted HK17.8m revenue for FY11, but was strangely only set up Consideration will be $60k cash, and new shares to be determined subject to meeting certain profit targets. Mgt says the acq will provide the group with an additional rev stream. Though given that Update Electronics was set up only on 18 Jan ’10, the lack of track record and small size of the target firm may draw questions on the effectiveness of this acquisition. As for the big swings / decline in share price, we note that this is likely due to speculation. Sentiment likely got deflated after the proposed RTO and acquisition of Solar Silicon Resources fell through. For a micro cap, this co seems to be engaging in rather frequent and random corporate activity. It is involved in a corporate restructuring, has issued new shares to buy over Midland Silicon, a silicon trading group, been queried a couple of times by SGX for unusual trading activity, has disclosed that lawsuits having been filed against some its disposed subsidiaries in China, and has requested for delay in holding its AGM citing financial difficulties, staff turnover, inability to find a replacement for the Finance Manager on maternity leave, etc. Value investors generally view such complexity as a red flag.