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Daily ShareChat: Rakon

By Jenny Ruth

Thursday 23rd December 2010 1 Comment

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 Jenny Ruth

With few signs of currency headwinds abating, crystal timing devices manufacturer Rakon's lack of currency hedging in financial 2012 is likely to moderate the positive contribution from its Chengdu plant in China and its expanding but still volatile femtocell volumes, says Craigs Investment Partners.

"Chengdu plant, which will come online at the end of the first quarter 2012, should lower the input cost of crystals in smartphone TCXOs by over 40%," Craigs says. However, at least some of that improvement is likely to be offset by the strong currency.

Rakon's 31% top line revenue growth in the six months ended September "clearly indicates that Rakon's strategies focusing on the smartphone and femtocell markets are starting to pay off," the broker says.

Smartphone TXCO shipments grew from about 100,000 to more than 10 million in the six months ended September but to meet the increased demand Rakon had to source between 60% and 70% of the crystals from a third party which cost between 35% and 50% more than its Auckland in-house production.

"At the earnings level, the financial reward is less promising." While femtocell sales delivered strong incremental earnings growth, the margin contribution from smartphone sales was disappointing, it says.

"In addition, we believe the smartphone market, after five years of strong growth, is fast maturing and intensifying competition is likely to flatten out the growth curve."

Recommendation: Hold.

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Comments from our readers

On 26 March 2011 at 3:41 am jim Richards said:
This stock still stinks and not worth any punt till they come up with honest mid term sales forecasts.
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