HTC trading near cash leaves a smartphone brand with no value

[TAIPEI] A 56 per cent plunge in HTC Corp's stock this year has brought its market value near to cash on hand. That means investors are effectively saying the smartphone maker's brand, factories and buildings are almost worthless.

At NT$52.2 billion (S$2.3 billion), HTC's market price is barely above the NT$47.2 billion cash it had at the end of June. A further 9.5 per cent drop in its stock from the NT$63 close on Friday would bring the two figures into alignment, signaling investors put no value on the rest of the company.

"HTC's cash is the only asset of value to shareholders," said Calvin Huang, who has a NT$46.50 price target on the stock at Sinopac Financial Holdings in Taipei.

"Most of the other assets shouldn't be considered in their valuation because there's more write-offs to come and the brand has no value."

HTC's fall from a market capitalization of more than NT$900 billion in 2011 charts the perils of a product and marketing strategy that's failed in the face of stiffer competition from Samsung Electronics and Huawei Technologies. Once the best-selling brand in the US, the failure of its One, Butterfly and Desire smartphones to drive sales has pushed HTC outside a global top-10 now dominated by Chinese brands.

Its forecast for third-quarter sales of as much as 48 per cent below analyst estimates follows a 35 per cent cut to projected revenue in the preceding period and indicates that the Taoyuan, Taiwan-based company has little chance of regaining market share in the short-term.

HTC didn't respond to an e-mailed request for comment. There will be no one-time non-operating items this period, chief financial officer Chang Chialin said Aug 6.

The forecast loss-per-share for this period, which was five times wider than estimated, sparked analysts to slash their share price valuations of the stock by 17 per cent to NT$55.54.

With HTC having 828 million shares on issue, that means analysts expect the stock to fall below the NT$57 of cash-per- share the company had at June 30.

Analysts also now see profit eluding HTC through the end of 2017 and none of the 22 tracked by Bloomberg that updated their view in the past three months recommend investors buy the stock.

While HTC has no long-term debt, 34 per cent of its asset value comes from inventory and accounts receivable, according to Bloomberg calculations. Its inventory, measured in turnover days, jumped 60 per cent in the 12 months through June 30.

To reverse sales that have fallen by more than 75 per cent since the September quarter of 2011, HTC plans to cut costs and focus on the high-end market where profits are higher. Reductions will start in the current period and start to show results by the first quarter, Mr Chang said.

"We are happy to see HTC readjust its strategy, and see these changes as long-term positives if HTC can successfully transform itself into a boutique brand," Kylie Huang, an analyst at Daiwa Securities Group, wrote in an Aug 6 note. "We believe these changes would take time and do not expect HTC to turn profitable in the near future."

BLOOMBERG