Sinohub (NYSE AMEX:SIHI)

Rodman and Rensahw on SIHI                                    8/16/2011

SIHI: 2Q11 Earnings Update; Lowering Rating to Market Perform

Lowering Rating To Market Perform: We are lowering our rating on SIHI to Market Perform from Market Outperform. Our lowered rating is driven by 1) a significant miss in 2Q11 results relative to our expectations 2) substantial revision in revenue guidance and 3) limited progress in branded phones and tablet initiatives.

2Q11 Missed: SIHI reported 2Q11 revenue and net income of $40.9 MM and $1.04 MM, with diluted EPS of $0.02, significantly lower than our expectations of $50.2 MM, $4.4 MM, and $0.26, respectively. Total revenue declined by 6.7% Y-o-Y from $43.9 MM in 2Q10 but up 7.8% sequentially from $38.0 MM in 1Q11. Gross margin dropped to 10.8% from 17.3% in 2Q10 due to a more aggressive pricing reduction in SIHI’s ICM segment in order to win new customers to mitigate the loss. Net income declined by 64.1% Y-o-Y to $1.04 MM, implying a net margin of 2.5% for the quarter.

Unexpected Pullback from the Largest ICM Customer: By business segments, ECSS and ICM each contributed $31.7 MM and $9.2 MM in revenue, representing 3.6% and (30.8%) y-o-y change. The sharp drop in ICM segment was mainly driven by SIHI’s largest ICM customer unexpectedly pulling back its orders due to its inventory issues with some other suppliers. Management expects this situation may turnaround again in 4Q. Additionally in ECSS segment, SIHI is switching its business model from a ‘purchase and sales model’ to a brokerage model, in which the company only books the commission as its revenue, compared to book the entire component sales value as revenue and the mark-up as gross profit. This business model shift is expected to result in lower revenue amount and higher gross margin.

Lowering FY11 Guidance: Given the uncertainty in its ICM business and change in revenue recognition in the ECSS segment (due to the business model shift), the company lowered its FY11 revenue guidance significantly to $195 MM from previously issued guidance of $255 MM for FY11. Management expects SIHI to ship 2.5 MM phones in FY11, compared to 3 MM of projections announced before.

Revising Estimates: We are lowering our estimates for 3Q11 revenue, net income, and diluted EPS to $54.7 MM, $2.19 MM, and $0.06, respectively. For full year FY11, we are expecting the company to generate $192.3 MM, $9.8 MM, and $0.28. We are projecting $61 MM in revenue from ICM and $131.3 MM from ECSS. For FY12, our estimates are $161.47 MM for the top-line, $14.43 MM for bottom-line, and $0.38.

Valuation: At current levels SIHI is trading at a P/E multiple of ~2.4x and ~2.0x to our new FY11 and FY12 earnings estimate. The unexpected revenue shortfall seen in 2Q11 has come at a time when the stock was already under pressure.

Risks: (1) Market Competition (2) Customer Concentration (3) Risks Associated With Accounts Receivable (4) No Long-Term Contract (5) Labor Cost Headwind


Notice Regarding Privacy and Confidentiality:

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

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Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

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Notice Regarding Privacy and Confidentiality:


This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member SIPC.
Member FINRA.

Rodman and Renshaw on SIHI                5/16/2011

SIHI: Components Shortage Weighs On 1Q11; Revising Price Target To $5.50

1Q11: SIHI reported 1Q11 revenue and net income of $38.0 MM and $3.54 MM, with diluted EPS of $0.12, compared to our expectations of $47.6 MM, $4.0 MM, and $0.10, respectively. Total revenue declined by 1.6% Y-o-Y from $38.6 MM in 1Q10 and 35.1% sequentially from $58.5 MM in 4Q10. The y-o-y decrease of revenue was primarily due to a 33.2% decline in ECSS revenue caused by electronic components shortage from the Japan tragedy. In comparison ICM segment posted stronger sales growth of 157.5% from a year ago. ICM and ECSS each accounted for 43.3% and 56.7% of total sales.

Higher Margin; But Uncertainty Remains: In spite of lower top-line numbers, the gross margin for the quarter was up by 180 bps to 20.2%, partially due to a higher portion of sales contributed by ICM, which carries richer margin relative to ECSS. However, we believe the current inflationary environment in China may put pressure on the company’s gross margin going into the second half due to some signs of labor cost and raw material cost issues.

Branded Phones: Management stated that the company is currently working on introducing branded phone but it is too early to make concrete conclusions. We haven’t factored in any branded phone sales for this year, but we believe in the mid/long-term, this could be an important catalyst for the stock.

Outlook: Management acknowledged that 1Q is historically slow due to the holiday season and the company has seen some effects of Japan’s earthquake, which has caused the business to be slightly behind what was originally expected. However they stated that last year 1Q was also slightly weaker but subsequent quarters came in much stronger than expectations.

Our Estimates: We remain optimistic on SIHI’s business model and growth in their ICM segment. However, we are being slightly conservative with our projections going forward driven primarily by the dropping ECSS business. We are expecting gross margins to remain steady as contribution from ICM increases. For 2Q11, we are now projecting $50.2 MM for top-line, $4.4 MM for bottom-line, and $0.12 per diluted share. This compares to our previous estimates of $57.4 MM, $5.7 MM, and $0.15. For full year FY11, our projections are $217.3 MM, $20.2 MM, and $0.56 per diluted share, respectively.

Revising Price Target To $5.50: At current levels SIHI is trading at a P/E multiple of ~2.5x to our new FY11 earnings estimate. This is significantly below the peer group. We are now revising our price target on SIHI to $5.50 from $7.00 driven by lowered projections for 2011. Our new price target of $5.50 for SIHI translates into P/E multiple of ~10x to our earnings estimates for FY11, still implying a discount compared to a ~22.8x multiple for its peer group listed in China, and ~18x for the US listed comparables. We believe these are very reasonable multiples for an emerging company that is growing its market position, introducing new products and improving its margins. We maintain our Market Outperform rating.

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This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

Rodman and Renshaw on SIHI                      4/06/2011

SIHI: Fundamental Story Remains Unchanged; Maintain Market Outperform

Call With Management: We spoke with SIHI’s management to get an update on the company after a non news driven pullback in the stock yesterday. We don’t believe there has been any new developments in the company’s operations to drive the weakness in the stock.

Key Takeaways: 1) Management is emphasizing on design house customers in the SCM business (~4% on revenues) to help drive volume, increase component sales and get access to reference designs 2) tablet orders continue to be pursued 3) use of proceeds from recent raise to go towards supporting growth in ICM business, maintain inventory and allow procurement flexibility 4) management confident about auditing and accounting controls 5) 1Q11 has tracked in line with historical seasonality seen in first quarter

Maintain Market Outperform: At current levels SIHI is trading at a P/E multiple of ~2.3x to our FY11 earnings estimate. This is significantly below the peer group. We are comfortable maintaining the $7.00 price target for SIHI, which translates into P/E multiple of ~10.5x to our earnings estimates for FY11, still implying a discount compared to a ~22.4x multiple for its peer group listed in China, and ~15.6x for the US listed comparables. We believe these are very reasonable multiples for an emerging company that is growing its market position, introducing new products and improving its margins.


Notice Regarding Privacy and Confidentiality:

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

trong 4Q10 Beat: SIHI reported 4Q10 revenue and net income of $58.5 MM and $7.2 MM, with diluted EPS of $0.25, beating our expectations of $54.3 MM, $4.8 MM, and $0.17, respectively. Total revenue grew by 36.7% Y-o-Y from $42.8 MM in 4Q09 and 4.9% sequentially from $55.8 MM in 3Q10.

 Rodman on SIHI:

Full Year Results: On a full year basis, the company generated $196.7 MM in revenue, $19.1 MM in earnings, and $0.67 in diluted EPS, compared to our estimates of $192.5 MM, $16.7 MM, and $0.58, respectively.

Margin Expansion Continues: 4Q10 gross margin reached 22.2%, improving from 15.0% in 4Q09 and 18.3% in 3Q10. Management attributed the overall margin expansion to continued strength in demand for Sinohub’s handsets with more higher-margin phones shipped during the quarter. As the revenue contribution from ICM increases, management expects margin to continue to improve throughout FY11.

Tablets in Place: During 4Q10, the company started producing its first batch of low-end tablet products. Management disclosed that these new products are normally made at a cost of $70 and sold at a minimum of $90, yielding 20% plus in gross margin. Tablet products are expected to generate meaningful revenue in FY11 and should be viewed as a potential upside driver on both top-line and bottom-line.

FY11 Guidance & Estimates: Management is guiding for revenue of $255 MM for FY11, representing a 30% y-o-y growth from FY10. We are revising our estimates accordingly. For 1Q11 we expect the company to generate $47.6 MM in revenue, $4.0 MM in earnings, and $0.10 in diluted EPS. For the full year, we are projecting $255.3 MM, $25.3 MM, and $0.67, respectively. Our margin estimates may prove conservative if ICM momentum in relation to smart phones continues.

$11 MM Capital Raise: On March 21, 2011, the company completed a registered direct offering by issuing 4.8 MM shares of common stock at $2.30 per share and warrants to purchase up to 1.4 MM shares at $3.00. Total gross proceeds were $11 MM. The company expects to use the proceeds to support its working capital and cash flow. We have adjusted our financial projections based on the increased share count after the transaction.

Valuation: At current levels SIHI is trading at a P/E multiple of ~2.8x to our new FY11 earnings estimate. This is significantly below the peer group. We are comfortable maintaining the $7.00 price target for SIHI, which translates into P/E multiple of ~10.5x to our earnings estimates for FY11, still implying a discount compared to a ~22.1x multiple for its peer group listed in China, and ~18x for the US listed comparables. We believe these are very reasonable multiples for an emerging company that is growing its market position, introducing new products and improving its margins.

Notice Regarding Privacy and Confidentiality:

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Rodman and Renshaw on SIHI                             01/31/2011

SIHI: VCM Segment Renamed; Handset Shipment to Reach 3 MM in 2011 

Segment Name Change: Sinohub changed its VCM (Virtual Contract Manufacturing) segment’s name to ICM (Integrated Contract Manufacturing), which better reflects its unique business model that includes integrated electronic components sourcing, supply chain management, and design house relationships. The company also launched a new online design selection system which leverages its relationships with various customers in the mobile phone value chain and provides its distributors with customized designs specifically targeted to their local buyers.

Handset Shipment to Hit 3 MM in 2011: The company expects to sell approximately 3 MM phones in 2011, a 160% y-o-y growth from 2010, helped by a strong order pipeline. The company expanded capacity in 2H10, and is no capable of producing up to 300,000 phones and 630,000 motherboards each month. This is largely in line with our projections and we maintain our financial forecasts of $259.2 MM in revenue, $24.3 MM in net income, and $0.84 in diluted EPS.

Valuation: At current levels SIHI is trading at P/E multiples of ~4.8x and ~3.3x to our FY10 and FY11 earnings estimates. These multiples are below the peer group. We are comfortable maintaining our $7.00 price target for SIHI, which translates into P/E multiples of ~12.0x and ~8.3x to our earnings estimates for FY10 and FY11, still implying a discount compared to ~28x and ~23x multiples for its peer group listed in China, and ~18.2x and ~15.1x for the US listed comparables. We believe these are very reasonable multiples for an emerging company that has substantial growth opportunities ahead, a strong market position and a healthy balance sheet.


Notice Regarding Privacy and Confidentiality:


This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

Rodman & Renshaw on SIHI                     01/07/2011

SIHI: China Unicom 3G Order Received 

Order from China Unicom: Sinohub announced its first domestic 3G handset order from China Unicom (762-HKG, Not Rated) for 20,000 to be delivered in 1Q11. SIHI will supply one dual-mode (WCDMA and GSM) handset model for China Unicom owned retail branches in China, and these phones will be labeled under “China Unicom” brand. This initial order will be delivered with a license purchased from a 3^rd party, while management is in the process of obtaining an official license from regulators for domestic sales, hopefully by the end of 2011.

Key Takeaways: We are very encouraged by this news. This 3G order should enable the company to be better positioned to win some share in China’s 3G market. Although the volume of 20,000 units is not significant enough to have a material impact on its margin and bottom-line, we do believe this is a trial for China Unicom before it extends a bigger order. In our opinion, the sluggish uptake of 3G subscriptions in China during 2010 will be addressed by the carriers though introduction of lower priced white-label 3G handsets. Overall, domestic 3G handset producers should be well positioned for 2011.

Valuation: At current levels SIHI is trading at P/E multiples of ~3.9x and ~2.7x to our FY10 and FY11 earnings estimates. These multiples are below the peer group. We are comfortable maintaining our $7.00 price target for SIHI, which translates into P/E multiples of ~12.0x and ~8.3x to our earnings estimates for FY10 and FY11, still implying a discount compared to ~29.4x and ~25.1x multiples for its peer group listed in China, and ~19.0x and ~15.8x for the US listed comparables. We believe these are very reasonable multiples for an emerging company that has substantial growth opportunities ahead, a strong market position and a healthy balance sheet.


Notice Regarding Privacy and Confidentiality: 


This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

Rodman & Renshaw on SIHI

Overview: SIHI reported 3Q10 revenue and net income of $55.8 MM and $5.5 MM, with diluted EPS of $0.19, beating our expectations of $52.3 MM, $4.7 MM, and $0.16, respectively. Total revenue grew by 54.1% Y-o-Y from $36.2 MM in 3Q09 and 27.1% sequentially from $43.9 MM in 2Q10. The company generated gross profit of $10.2 MM, representing a gross margin of 18.3%, compared to $6.4 MM or 17.8% in 3Q09 and $7.6 MM or 17.3% in 2Q10. Operating profit reached $7.5 MM or 13.4% in EBIT margin, compared to 13.0% and 9.9% for 3Q09 and 2Q10, respectively. Net income rose by 55.3% Y-o-Y to $5.5 MM, implying a net margin of 9.9% for the quarter. The company ended the quarter with a total of $5.4 MM in cash, $46.3 MM of accounts receivable, $8.7 MM of inventory, and $16.4 MM of bank borrowing. 

VCM Business Continues To Drive Top-Line Growth: By business segments, ECP, VCM and SCM business each contributed $35.3 MM, $19.0 MM, and $1.5 MM in revenue, accounting for 63.3%, 34.1%, and 2.6% of total sales for the quarter. VCM business continues to be the major growth driver for SIHI’s top-line growth, given that ECP and SCM only grew by 2.9% and a minus (23.6%) Y-o-Y. VCM segment grew by 43.0% sequentially from $13.3 MM in 2Q10. Total production volume of handsets reached 320,000 units in 3Q10, compared to 250,000 units in 2Q10, aided by the strong order flows from emerging Asian including Indonesia and India. We also expect the company to start shipping smart phones to the local distributors in those markets, which should help improving the gross margin. 

Key Takeaways: We remind investors that SIHI is filling an important gap in the electronics and mobile phone supply chain associated with smaller volume orders. There are numerous small players in Asia who do not have the volumes to be able to engage the likes of Foxconn (2038-HKG, Not Rated). SIHI provides strategic one stop shop service that we believe will be valued by smaller players in the market. The company now appears to have sufficiently scaled the learning curve on the VCM side to provide consistent operating results and provide investors with good visibility. We believe headlines surrounding handset sales in China and Asia will continue to support investor interest in the story. 

Guidance Raised: Management raised its 2010 revenue guidance to $192 MM from $180 MM, based on the strong momentum in VCM business. Now for 4Q10 we are expecting revenue and net income of $54.3 MM and $4.8 MM, with diluted EPS of $0.17. This implies a full year revenue, net income, and EPS of $192.5 MM, $16.7 MM, and $0.58, respectively. For FY11, our estimates are $230.7 MM, $20.9 MM, and $0.73. 

Valuation: At current levels SIHI is trading at P/E multiples of ~4.5x and ~3.6x to our new FY10 and FY11 earnings estimates. These multiples are below the peer group. We are comfortable maintaining the $7.00 price target for SIHI, which translates into P/E multiples of ~12.0x and ~9.6x to our earnings estimates for FY10 and FY11.

Notice Regarding Privacy and Confidentiality:

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.