Several consumer electronics firms are facing a leverage backlash as the business environment deteriorates. Kolin Co (歌林), in particular, has seen its stock fall limit-down in every single trading session since the beginning of this month to close at NT$4.26 yesterday.
Kolin stock was put on a restricted list of securities by the Taiwan Stock Exchange yesterday, prohibiting margin trading of the company’s shares.
The company’s woes were triggered by investment in the US-based firm Syntax-Brillian Corp, which filed for bankruptcy on Monday.
Syntax’s troubles began to emerge when the maker of the Olevia-brand liquid-crystal-display (LCD) TV was unable to complete its filings with the US Securities and Exchange Commission for the quarters ended Dec. 31 last year and March 31 this year.
On July 7, the once successful flat-panel TV company filed for Chapter 11 protection in the District Court of Delaware. On Monday, Syntax was officially delisted from the NASDAQ stock exchange.
Kolin spokesperson Chu Tai-yang (朱泰陽) said Kolin invested in the US LCD maker in March 2004. Since then the two companies have each released separate financial statements that were irreconcilable.
Chu said that since the two firms were on different revenue recognition schedules, the problems did not surface until much later, at which time Kolin promptly requested Syntax to restate its financial statements.
Kolin chief executive officer Liu Chi-lieh (劉啟烈) served on the board of Syntax, but he did not participate in Syntax’s financial statement preparation.
Syntax statements were prepared by then chief financial officer Wayne Pratt and an independent financial auditor.
Chen Yu-yu (陳育娛), an analyst at Capital Securities Corp (群益證券), attributed Kolin’s problems in part to a slowdown in consumer spending amidst rising inflation, which has affected the broader consumer electronics sector.
Companies have resorted to cutthroat pricing to boost sales, but this has cut into their bottom line, Chen said.
Apart from Kolin, traditional consumer electronics companies such as Tatung Co (大同) and Sampo Corp (聲寶) have been negatively affected by the central bank’s recent interest rate hikes, as these already heavily leveraged companies face even tougher financial burdens owing to the increased cost of borrowing.
Chen believed their debt-heavy capital structure was one reason why the sector suffered heavy losses during the recent market downturn.
“We don’t rule out any bankruptcies down the line for any financially strapped companies in this sector,” Chen said.
Research Analyst Crane Ni from KGI Securities Co (中信證券) downgraded Kolin to “underperform” just one month before the financial debacle last month. Ni cited its forecast low earnings per share of only NT$0.01, forex losses and the subprime crisis affecting LCD sales.
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