LongCheer

LongCheer: DBSV downgrades Co. to Sell from Buy with $0.49 TP, a sharp downgrade from previous $1.11 TP. Note that weak demand and severe margin compression in India continues with the India handset market plagued with a severe stock pile in the feature phone segment…

As a result, handset makers aggressively cut ASP to clear stock. As there is still inventory in the channel, expect this trend of low volume and low margin will last for three more qtrs. As India accounts for 40% of group sales and almost 50% of shipments, house expect a significant adverse impact on Longcheer’s performance in the qtrs ahead…..

Add that Longcheer’s 3G volume is still small and will not offset the weakness from feature phones. Meanwhile, house have not seen signs of mobile lottery contributing in 1Q11 and believe it will take a much longer time to create user awareness and become a significant contributor….

House Downgrades to Sell following a 16%/20% cut in shipment volume for FY11F/12F, 10% drop in ASP and a 4-4.7% decline in gross margins. Forecast a loss of $12m in FY11 and $12.7m profit in FY12. Re-peg TP to historical mean P/B of 1.3x FY11, thus yielding a revised TP of $0.49.