Saturday, April 17, 2010

Action Asia: A Stock For The Long Run?

Business Description
The Group's principal activities are designing, manufacturing and assembling mobile audio and video entertainment products. It manufactures television/ monitor with/without Digital Video Disc (DVD) which incorporates the Thin Film Transistor- Liquid Crystal Display (TFT-LCD) technology and LCD television/ monitor with DVD. Its products are categorised as mobile entertainment (for use in automobiles), indoor (for use in homes) and outdoor (portable) products. The Group's products are marketed mainly to automobile manufacturers/dealers, automobile accessories dealers and hypermarkets in the United States of America, Hong Kong and the People's Republic of China. - Wright Reports

Stock The Long Run?
I believe that there is a lot of room to run in the current stock market but I review my stocks quarterly in case anything fundamental changes that affects them. I don't think that Action Asia is a stock for the long run (20-30 years) and I am giving it 3-5 years, assuming a 10 year up market in equities (possible, possible).

There is upside for the stock not only because it has recently increased its capacity in Shen Zhen but also, Action Asia is serving the China Auto market, which I have mentioned in earlier posts, is going to be growing at a fast clip. This will possibly increase inter-province traveling and hence the need for on board entertainment.

However, as a consumer electronics, margins will diminish and Action Asia's staying power will depend on its size, which unfortunately, cannot be compared to other existing competitors already in China. A quick look at the LCD panel industry and you will see the consolidation that is forcing smaller players out, giving the bigger players significantly largely capacity and pricing power.

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