By Josh Franklin (jkvaluefund), Guest Contributor
Make no mistake about it, China Techfaith (CNTF, ~$1.15) carries a big stick when it comes to its balance sheet. While it has been a value trap for the past 12 months, it’s now ready to show Wall Street and Chinese investors why it’s time to accumulate as much stock as possible below $4.00 per share. Over the past 5 to 6 years, China Techfaith has built up a respectable real estate portfolio in four different cities in China. It has 23 brand new buildings in Hangzhou, Beijing, Shanghai and Shenyang that are ready for lease, sale or a combination of the two.
China Techfaith maintains a rock solid balance sheet in both cash and physical buildings. As of December 31, 2014 it had $171 million in cash ($3.22 per share) and it has been acquiring land rights since 2008. It recently acknowledged the completion of 23 buildings worth conservatively $152 million dollars (~$3.00 per share). It has next to no debt with ~$15 million in debt.
We want to share China Techfaith’s extensive portfolio with you. We captured the real estate portfolio in late December 2014 and early January 2015. We believe that the recent increase in volume is more than likely associated with the company landing sales or leases of its properties.
China Techfaith currently has 3 buildings that reside next door to Alibaba’s and Netease’s campuses. It spent $43 million on these three buildings and we believe leases have been activated in these properties. Rumor from certain sources have Alibaba leasing some or all of the spaces in this technology park. China Techfaith plans to start construction on 3 more buildings adjacent to the ones below:
Hangzhou has a total of 43,500 square meters of rental space. The total cost of phase 1of the existing 3 buildings was $62.5 million and another $50 million will be needed for the ongoing construction of the 3 buildings that started late last year.
Beijing — Head Office
Beijing — Xihongmen: Technology Park near International Airport
China Techfaith spent ~$30 million to construct 16 buildings in its own technology park. The buildings are outside the airport and adjacent to BMW and Audi offices as seen in the pictures below. These pictures were taken in late December and we believe they’re ready to be sold or leased accordingly. The company has 73,557 square meters of rental space from the 16 buildings. The total cost of the 16 buildings was $59.7 million. It plans on building another 16 buildings for a total cost of ~$30 million.
Beijing — Jiuxianqiao
The company has 20,466 square meters that it started leasing late last year. These two buildings are generating ~$3 million in annual income.
This is one building comprising 1566 square meters and is self owned.
There are two buildings here with a total of 10,270 square meters. The company spent $10 million on the construction and plans to build at least 4 more buildings in this project totaling 40,966 square meters.
We believe China Techfaith possesses over $185 million in real estate or $3.50 per share. The company acquired these properties with cash flow from its existing handset business over the past 12 years. The company possesses over $171 million in cash or 3.23 per share. It has a balance sheet that has a book value of $6.00 conservatively and its smart phone business generates $100 million in annual revenues in a terrible market. We believe the handset business saw a reversal to good fortune last quarter reversing a 4-5 quarter down trend thanks to ramping up 4G phones for the first time.
Looking at the China Techfaith chart we can see that over the last three months it put in a bottom at $0.95. This past week has seen the beginning of the breakout as volume has come into the stock. We would like you to look at the two charts below of Chinese companies AirMedia Group (AMCN) and Chop Gerui (CHOP) to see the type of explosive move that we are looking for in China Techfiath. Both of these stocks made a bottom and then exploded to the upside as volume came into the stock. Buying China Techfaith here is like buying AMCN at $2.00 or CHOP at $0.75.
Yesterday, China Techfaith traded 1.2 million shares and closed very strong. It reports earnings on or near May 20th and we believe that it will be the first time we hear specific details on its real estate. Based on our “on the ground research” we believe it is poised to become a much larger stock like its balance sheet warrants.
Disclosure: Author was long CNTF at time of article
GeoInvesting has no affiliation with Josh Franklin in any way and is not endorsing his research, nor has GeoInvesting vetted this information in any way. The GeoTeam does not attest to the accuracy of the information contained in this report and always urges investors to conduct their own due diligence. The GeoTeam has received no compensation for the dissemination of this report. The GeoTeam holds no position in CNTF.