Global Testing Corporation is a Taiwanese company listed on the Singapore Exchange. It provides testing services -- e.g. wafer sorting, final testing services, test program development, conversion and optimization services, load board and probe card design, and leasing of testers -- to the semi-conductor industry, focusing on logic and mixed signal semi-conductors used in consumer electronics and communication devices.
Its main testing facilities in Hsin Chu, Taiwan and Sunnyvale, CA service customers such as Taiwan Semiconductor, United Microelectronics, Marvell Technology, ALi Corp, Realtek Semiconductor and Sunplus Technology Co Ltd.
There top line declines seen above are a indicative of the secular decline in consumer electronics over the period and, as one can see from the Return on Invested Capital line, this is not a wonderful business.
The Investment Case
1. Depreciation rates in excess of its maintenance capital expenditure requirements have caused GTC to accumulate large accounting losses since its incorporation in 2004.
2. Singapore incorporated businesses with retained losses are restricted from paying out dividends. One way around this is to instead buy back shares sufficient to reduce the equity capital of the company by (at least) the amount of the accumulated losses. Capital reduction in this way enables the company write off its accumulated losses by cutting an equivalent amount of stockholders’ stakeholding.
From GTC's Letter to Shareholders prior to its capital reduction excercise this year:
and from the 3Q 2015 Financial Statements (the left hand column is at Sep 30, 2015):
3. Given the state of play in GTC's end markets -- and given also the capital allocation practices at Yageo Corp, also owned by Pierre Chen -- it is more likely than not that it intends to return the lion's share, probably 100%, of its free cash flows to shareholders by instituting a dividend policy and opportunistically buying back shares.
From the Letter to Shareholders
4. GTC's free cash flows can likely support payouts in excess of SGD $10 million per year, implying a payout yield of > 35%
Disclosure: I own some shares in Global Testing Corporation