This morning I purchased a small number of additional shares in Varitronix (HK:710) paying HK$3.54 per share.
Varitronix was sold off heavily following the release of its interim results this morning. At the time of writing the shares were down more than 12% from Friday's close. While I usually proceed on the basis that the market knows more than I do, this was puzzling:
1. the result was a good one - EPS for the period was 30.38 cps, up 39% from the previous corresponding period
2. the interim dividend was doubled to 11 cps
3. the result was achieved in spite of (i) rising costs typical of those faced by PRC manufacturers generally (ii) the impact of the Japanese earthquake and tsunami and (iii) losing HK$19.9 million on trading securities
4. the company is sitting on HK$354 million in cash and HK$294 million in securities. While details of the securities held were not provided, it can be inferred from the break down of "other income" that the bulk of them should be debt securities. After backing out the HK$126 million in debt and arbitrarily discounting the securities by 20%, the company has net cash and investments of HK$463 million or approximately HK$1.41 per share
5. the Chairman's comments were cautious to slightly negative, leading to the conclusion that results for the second half may not be as good as the results for the first half. This is hardly surprising. However, IMHO, the second half results would have to be a lot worse to justify the sell off in the company's shares. Put differently, if the final dividend for 2011 is the same as the final dividend for 2010 (21 cps), then the annual dividend is 32 cps, a yield of over 9%
What am I missing?