Sat, Nov 17, 2001 page21

• Investors buying tech shares doing their homework

  SORTING PROCESS Investors have become choosy about which companies they think will recover first as interest rate cuts begin to revive a slumping global economy

  • BLOOMBERG
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  It may be the best of times and the worst of times for Singapore computer-related stocks, judging by their performance on the island's Straits Times Index in the past month.

  Creative Technology Ltd was the best performing stock on the index on prospects of better sound card sales during Christmas.

  Datacraft Asia Ltd was the worst performer after the networking systems builder warned of declining profit.

  Other stocks, usually bunched together at one end of the index's performance chart, are littered on both sides as investors become choosy about which companies will recover first as interest rate cuts revive a slumping global economy. Signs that spending by US consumers is rebounding faster than that of businesses may define the sorting process, some analysts said.

  "People may be a bit more positive that PC sales are picking up and Creative's sound cards are quite cheap and may make good Christmas presents," said Tan Yuh Harn, who helps manage about US$2 billion of assets in Asia, excluding Japan, at SGY Asset Management Ltd. "For Datacraft, a lot of people weren't happy with their profit warning as they should have seen that things weren't looking good and warned investors earlier."

  Datacraft shares lost 44 percent in the past month after the company said profit for the half year ending December may decline between 60 percent and 70 percent. Before that, the company repeatedly held on to its forecast of profit growth even as Cisco Systems Inc, its biggest supplier of equipment, suffered losses.

  "For quite a while we've been telling people to switch out of Datacraft and into Creative because it's unbelievable that their 30 percent guidance could be on track,'' said Lawrence Lye, an analyst at Indosuez W.I. Carr Securities Ltd in Singapore.

  Investors are paying heed. A day after Datacraft's announcement, Capital Group Companies Inc, one of the company's three biggest shareholders, sold 30 percent of its stake in the Singapore company.

  The Los Angeles-based fund manager, which manages more than US$325 billion in assets, also bought some shares of Creative and other Singapore technology stocks at the same time according to stock exchange filings.

  The drop in Datacraft shares also pulled down shares of Elec & Eltek International Co. The biggest publicly traded printed circuit board maker on the Singapore exchange fell 13 percent, the second-worst performer.

  Investors say Datacraft's announcement reminded them of Elec & Eltek's results two years ago, where the company reported fiscal first-half profit fell 12 percent one month after telling Bloomberg News it expected profit to expand 15 percent to 20 percent a year for the next three to five years.

  Some are also concerned that the company may be hurt by weaker industry demand after Taiwan-based rival Compeq Man-ufacturing Co reported a 36 percent drop in profit for the nine months ended Sept. 30.

  For Creative and other gainers on the index, investors say the US Federal Reserve's decision to push rates to a 40-year low helped as that may boost the economy and revive corporate spending on technology. However, investors will still look at each company's growth prospects, some analysts said.

  "When the results came out for Creative, there has been anecdotal evidence suggesting that individual's travel holiday budgets are being diverted to consumer items," Indosuez's Lye said. "Sound cards are cheap and people will buy it for a Christmas present." Creative shares surged 57 percent in the past month and may rise further, some analysts said.

  That's because Dell Computer Corp, which installs Creative soundcards in its personal computers, said sales and profit this quarter will be in line with expectations. The Austin, Texas-based Dell was also the only PC maker to boost shipments in the calendar third quarter as it slashed prices and won business from rival Compaq Computer Corp.

  Following Creative is Chartered Semiconductor Manufacturing Ltd, the third-largest maker of chips to other companies' specifications, which rose 24 percent. ST Assembly Test Services Ltd, Asia's second-largest chip tester, gained a fifth.

  While both companies are expected to lose money through next year, both are reporting improving outlooks. Chartered, for example, told Bloomberg News two weeks ago chip shipments may rise in the fourth quarter from the third.

  "We are looking at a recovery in the semiconductor sector after the second quarter next year -- that will be the first to recover within the tech sector,'' said Marc Tan, who helps manage about US$100 million at OUB Optimix Funds Management Ltd in Singapore.

  Among the top 10 gainers on the index is Venture Manufacturing Singapore Ltd, a Singapore maker of electronics components. The stock rose 9 percent as Hewlett-Packard Co, the second-biggest computer maker and one of Venture's biggest customers, said this week sales beat forecasts.

  Capital Group also picked up some Venture shares around the time it sold Datacraft shares, stock exchange filings showed.

  Even as these stocks rose in the past month, investors say gains may be short-lived as any concern of weaker sales or profit will reverse the gains. And nobody wants to be left with yesterday's favorites.

  "The leaders of the previous bull market are the usually laggards in the next bull market, that's the reason why quality is enormously important," Thomas John, regional head of portfolio management at Credit Suisse Private Banking in Singapore. "It's not going to be like the bubble in 1999, early 2000, when you could buy anything related to technology and make a lot of money."
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