By Josh Franklin (jkvaluefund), Guest Contributor

Many companies have strong contracts and business relationships that are tied to non-disclosures, so it difficult to see where the revenues or future business partners are, or could be. Unfortunately, it hurts shareholders and the company’s stock price. This is where solid channel checks can uncover significant value for investors and a company’s true value proposition in its markets. A case in point is China Techfaith Wireless (NMS:CNTF) ($4.00), a deeply discounted small capitalization handset manufacturer that announced a $30 million dollar contract with an international customer.

China Techfaith $30 Million Contract Went Unnoticed

On January 25th, 2016 CNTF announced that it received an estimated $30 million contract. Under the agreement,

“Techfaith will build and ship tailored-made wireless device starting in the first quarter of 2016 through the end of 2019, with a total value estimated at approximately US$30 million over the 3 year period. The agreement is with an international customer, which provides proprietary analytical solutions.”

Unfortunately, CNTF’s important material win fell on deaf ears as the name of the customer was not announced. If the name of the customer had been released it could have provided much needed credibility into the company’s handset operations and to the company’s share price since it trades so far off its $30 book value.

We believe that CNTF’s customer is Nielsen Audio a division of Nielsen (NLSN). We uncovered a shipping label that has CNTF sending Nielsen Audio a 3,853 kg package. On January 23, 2016, two days prior to CNTF’s announcement of the contract, China Techfaith used Panjiva to ship 3,853 kg to Nielen Audio in Tampa Florida. This is important as it shows it is shipping goods in the quarter as management said. In addition, CNTF had 3 days per SEC regulations to announce material non-public information, so it bolsters CNTF’s management, showing it to be responsible as it followed proper procedures.

Below is the shipping label we uncovered:

Date 2016-01-23
Shipper Name Techfaith Intelligent Handset Techn
Shipper Address BUILDING C,NO.5A,RONGCHANG EAST STR, BEIJING 21 ECONOMIC-TECHNOLOGICAL, CHINA, CHINA
Consignee Name Nielsen Audio
Consignee Address 4027 TAMPA ROAD, SUITE 3400 TAMPA,, TAMPA,FL 34677, USA
Weight 3853
Weight Unit K
Weight in KG 3853
Quantity 519
Quantity Unit CTN
Country of Origin China
Details 3,853 kg
From port: Kingston, Jamaica
To port: Tampa, Florida
Place of Receipt Tianjinxingang Ch
Foreign Port of Lading Kingston, Jamaica
U.S. Port of Unlading Tampa, Florida
U.S. Destination Port Tampa, Florida
Commodity SCANNER “SHIPMENT NO SOLID WOOD PACK ND LIABLE
Container ZCSU2682050
Marks Description ING MATERIAL (SWPM)” CARRIER NO RESPONSIBLE A
Carrier Name MCL-MULTI CONTAINER LINE INC
Vessel Name PORTO
Voyage Number 15N
Bill of Lading Number MCLMTITPA1512001
Master Bill of Lading Number ZIMUXNG4056712
Lloyd’s Code 9481520
HTS Codes HTS 8467

To confirm our belief that Nielsen Audio is the customer, we went back to the Neilsen Audio Conference in early December 2015. As reported on AllAccess.com Nielsen Audio’s Chief Engineer, Arun Ramaswamy spoke about a new PPM monitor. To us, this proves that Nielsen Audio was in the market to produce a new PPM device which would connect the dots on the shipping label and the timing of CNTF’s press release on January 25th.

Through investing in CNTF over the years we believe CNTF has both possessed and delivered solid handset technologies. We also believe that with CNTF trading at 10% of its tangible book value (23 buildings) this order contains the ingredients to turn the company into a profitable business going forward. Nielsen dominates the rating systems in many different countries for media through its PPM devices and this is a solid vote of confidence to CNTF’s operations and we find it immensely positive.

CNTF Chart

china techfaith chart

Looking at the CNTF chart above, we can see that while it has been range bound for the past 6 months between $2.50 and $4.25 has formed a triple bottom at 2.50 per share. The stock is now pushing up against long term resistance and a breakout with volume at $3.75 could see a fast move up to $4.25 then $7.50 in short order. The company has approximately 6 million shares in the float and this recent major contract should completely exhaust sellers, setting it up for a great trade.

A Similar Trade that had a Big Return:

Acorn International (NYSE:ATV) Chart

atv chart

ATV made a long term bottom at $3.50 and then broke through long term resistance at $4.50 on large volume which saw it exploding higher. CNTF has a stronger balance sheet than ATV and with a strong US customer behind it, look for its shares north.

New Order:

On March 2, 2016, CNTF released a PR stating they began shipping their Phablet to Europe.

china techfaith phablet

“TechFaith’s JNOTE is a ruggedized phablet designed on the robust Android 5.0 Lollipop operating system, running on an Octa Core CPU, compatible with LTE/WCDMA/GSM networks, and accredited with IP68 and MIL-S810G standards certifications.  4G LTE gives the JNOTE fast mobile access, with an integrated 13 megapixel camera for professional quality video and still image photography.  Other features include a 6.0 inch LCD screen with 1080 x 1920 High Definition resolution protected by 3rd Generation Gorilla Glass, water resistance up to 1.5 meters, dust and shock resistance, dual sim card support and NFC to facilitate fieldwork. ”

china techfaith phablet

Conclusion:

China Techfaith certainly faced handset headwinds in 2015, but we believe they used the 4th quarter to stop the bleeding and push its sales force harder to bring profits back to the handset division. In the meantime, they sit on a $300-$400 million dollar real estate portfolio paid for in cash that could provide an incredibly strong springboard.


DISCLAIMER: GeoInvesting has no affiliation with the author of this report 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 may or may not have a position in any stocks mentioned in this article prior to its publication.