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    Stock Alert for China TechFaith Wireless (CNTF)

    China TechFaith Wireless Comm. Tech. Ltd. (CNTF) is a China-based company with global operations focused on opportunities in mobile phones and the fast growing PC and online gaming markets.  It maintains three primary businesses. Under the TechFaith umbrella, the Company is a global mobile solutions provider for global mobile handsets market. Under its TecFace brand, the Company engages in the development of specialized mobile phones for differentiated market segments, including the rapidly growing smartphone market targeting users and operators through its QIGI brand; outdoor and sports enthusiasts through its Jungle brand; and the teen market through licensed brands. Under the Company’s 17Vee brand, CNTF has built a leading, intellectual property-based motion gaming business ranging from Bluetooth enabled motion gaming controllers and software to a recently launched proprietary set-top motion game box.CNTF was incorporated in 2004.

    Share Statistics (6-June-11) FY 

    2009

    FY 

    2010

    %  

    Chg

    Q4 

    2009

    Q4 

    2010

    %  

    Chg

    Symbol CNTF Revenue, $Mn 211.08 271.88 28.8% 59.76 76.88 28.6%
    Current price $4.41 Gross marg. 18.1% 24.7% 36.5% 16.1% 27.9% 73.3%
    52wk Range: $2.34-$6.96 Oper. margin 13.3% 15.7%
    Avg Vol (3m): 383,738 Net margin 3.00 10.0% 233.3% 5.2% 11.5% 121.2%
    Market Cap. 233.43M
    Shares Outstanding 52.93M EPS, $ 0.01 0.03 200.0% 0.00 0.01 0.0%

    Source: Reuters.com, SEC Filings.

    Investment Highlights

    Shares of CNTF dropped over 16% to close Monday’s session at $4.41. The stock reached an intraday high of $5.24 before settling down. Over 3.35 million shares have traded hands during the session, versus the 10-day average volume of 667.70K.  Over the last 52 weeks, CNTF has seen a low of $2.34 and a high of $6.96. It is currently trading below its 50-day moving average of $5.14 and in line with its 200-day moving average. Market capitalization currently stands at $233.43 million and it has 52.93 million outstanding shares.

    CNTF yesterday reaffirmed its revenue guidance of $82 million to $84 million for the second quarter of 2011, with gross margin levels similar to the previous quarter.

    The Company also yesterday announced it will launch a 3D massive motion PC console game, “Legend of the 7 Swordsmen,” through its 17Vee Motion Game platform. According to Tony Kong, CEO of CNTF’s 798 Entertainment gaming business, the Company views this as a potential ‘Game Changing’ event for the broader market with considerable upside for gamers in the form of even richer, more intense, action packed game content. CEO Kong said that by combining their portfolio of intellectual property in motion gaming with the popular elements gamers want, the Company has the real opportunity to create and lead an entirely new gaming segment.

    According to CEO, 17Vee, to date, has developed 15 motion sports and casual games in-house and has the licensing rights to distribute approximately 52 games from third parties. Also, 17Vee motion devices, through convertible software, are able to support approximately 50 PC Online games and 300 standalone console games.

    “We expect to further expand our game catalog as we move forward in order to provide compelling content to gamers for use on our game controllers and motion mobile phone users. We plan to expand our in-house motion sports and casual games titles to 50 and our in-house massive motion PC Game titles to four in the next two years. Additionally, we would also like to expand available titles from the third parties to approximately 100 over the next two years,” he said.

    Visit CNTF at www.techfaithwireless.com

    Financial Summary

    CNTF reported net revenue of $78.7 million for the first quarter of 2011, a 29% increase compared to $60.9 million in the first quarter of 2010, and a 2% increase compared to $76.9 million in the fourth quarter of 2010. Gross margin for the first quarter of 2011 improved to 32% compared to 22% in the same quarter last year and 28% in the previous quarter.

    Income from operations for the first quarter of 2011 was $15.8 million, a 151% increase compared to $6.3 million in the same quarter last year, and a 31% increase compared to $12.1 million in the previous quarter. Net income attributed to CNTF for the first quarter of 2011 was $13.8 million, or $0.26 per basic and diluted weighted average outstanding ADS, compared to $7.1 million, or US$0.15 per basic weighted average outstanding ADS and $0.07 per diluted weighted average outstanding ADS in the first quarter of 2010, compared to $8.9 million, or $0.17 per basic and diluted weighted average outstanding ADS in the fourth quarter of 2010.

    The Company has restated the 2009 financial statements as a result of its application of a more appropriate accounting treatment in relation to its 8% senior secured convertible promissory notes issued to affiliates of IDGVC Partners in 2009. The Company will explain the background and details of the accounting treatment in the Company’s annual report on Form 20-F for 2010 to be filed with the Commission. As a result of the restatement, the financial results for the first three quarters of 2010 were adjusted: the interest expense in relation to the Notes was adjusted from $265,000 to $56.0 and the net income for the three months period ended March 31, 2010, was adjusted from $6.9 million to $7.1 million. The Notes were subsequently converted into ordinary shares in the Company and one its subsidiaries in September 2010, pursuant to the original conversion terms. The Company does not expect the restatement and adjustment will have any impact to the Company’s future financial results and positions.

    Source: www.techfaithwireless.com

    Financial Strength (6-June-2011) Company Industry Sector S&P 500
    Quick Ratio (MRQ) 6.89 1.71 2.27 0.71
    Current Ratio (MRQ) 7.41 2.04 2.70 1.04
    LT Debt to Equity (MRQ) 0.11 17.83 14.17 137.91
    Total Debt to Equity (MRQ) 0.11 27.89 24.66 184.20
    Interest Coverage (TTM) 1.31 0.84 18.01

    Source: Reuters.com, SEC Filings.

    Analyst Consensus

    No analyst recommendations and revisions data available.

    Technical Analysis

    Source: http://stockcharts.com

    CNTF is trading below its lower Bollinger Band. Relative to recent price action, the stock is currently overextended to the downside and for either a pause or retracement.

    CNTF’s MACD is indicating a weak bearish signal. Although the indicator is above the critical level of 0, which implies that the underlying moving averages are bullish, the MACD has crossed below its 9-day moving average or signal line. This suggests that positive momentum has begun to slow.

    Comparative Analysis

    Company Name Ticker Price per Mrkt. Cap. P/E P/S
    Jan06-2011 symbol Share, $ $ Mn 2011 2012 2011 2012
    Orsus Xelent Technologies Inc. ORS 3.08 7.76M n/a n/a n/a n/a
    Motorola Mobility Holdings Inc. MMI 24.35 7.18B 30.44 14.67 0.54 0.48
    Nokia Corp. (ADR) NOK 6.60 24.49B 17.84 13.47 0.43 0.42
    Research In Motion Ltd. (USA) RIMM 38.91 20.28B 6.03 5.65 0.85 0.77
    Qiao Xing Mobile Communication Co. Ltd. QXM 2.79 147.91M n/a n/a n/a n/a
    Diversified Communication Services Median 18.73 n/a 0.97 n/a
    China Techfaith Wireless Comm. Tech. Ltd. CNTF 4.41 233.43M n/a n/a n/a n/a

    Source: Thomson Financial

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