]> SA Advisory

URGENT NEW BUY RECOMMENDATION

Semiconductor products, China and Super Cheap Fundamentals, all for under $2.00
Current Price $1.75 Electrocon International, Inc.
NASDAQ Small Cap EPLTF).

Electrocon International was incorporated in March of 1988. The Company is a diversified Hong Kong-based holding company that conducts operations through its subsidiaries in two separate business segments - the distribution of semiconductors products (primarily computer chips) to small and medium-sized manufacturers located in Hong Kong and the People's Republic of China. The chips are used in a variety of electronic products, principally personal computers and consumer electronics products. This segment during fiscal 94 accounted for approximately 90.4% its operating revenues.
The Company sells hundreds of types of chips, from standard "off-the-shelf" chips to high-tech microprocessors. "Off-the-shelf" chips include various general purpose computer and memory chips. The group of custom and semi-custom chips, which includes ASIC's (application specific integrated circuits), programmable logic devices, standard all components and chips with gate arrays. The Company supplies over 1,000 customers in Hong Kong and China.
In Hong Kong the Company represents, either as distributor or agent, several of the world's largest semiconductor manufacturers. The Company has done business with Texas Instruments of HK for over 14 years. TI HK supplied approximately 63% of the Company's computer chips in the year ended 12-31-94. The Company also is supplied chips by Trident Microsystems, Zilog, Inc. SEEQ Technology, Inc., Quality Technology, Inc., and Integrated Circuits Systems. The Company has exclusive rights to distribute the TI line of chips in China.
The seasonal cycles in the Company's business are related to the seasonal cycles in the electronics business generally and the types of finished products made with chips supplied by the Company. Sales of the Company's chips generally increase from April through October, as the manufacturers of consumer products increase their production in anticipation of the Christmas holiday season. Sales of the Company's chips used in computers are steady throughout the year.
The Company's other business segment involves the distribution of golf carts, irrigation products and systems, fertilizer and turf equipment to golf clubs in Hong Kong, Macau and China.
Press Release - August 25, 1995
During the first six months of fiscal 95, the Company experienced significant growth - 75% in revenues from semiconductor business. The increased demand for semiconductors, especially memory products used in personal computers is the main factor for this growth. The Company has set up a network of branch offices and retail operations in five locations (Beijing, Shanghai, Nanjing, Guanghou and Shenzhen) to ride the tide of China's growing demand for semiconductors, especially CPU's used in personal computers and other related products. It is forecasted that during 1996 that China will experience a significant growth in computing demands in the public and private sector.
Chart A demonstrates an interesting as well as compelling comparison of our new recommendation - EPLTF and four other companies that are much larger, but primarily are in the same business; that is, the distribution of semiconductors. It is easy to conclude that the average PE multiple for MI, PIOS, AVT and ARW equals 14x, with the average PSR (price to sale ratio) equates to .48 or 48% of sales. If our choice recommendation was to sport multiples in line with its peers, it would be quite evident that EPLTF is extremely undervalued. If EPLTF was to sport a PE multiple of 14x versus 7x, its share valuation would equal $3.50. That is at least double the current price. If EPLTF was to mirror the average PSR of our select group and sport a similar value of 48% of revenues, then our selection would be priced at $3.50.
It is in our opinion that the valuations might be too conservative. Here's why! Upon review of Chart 1 it is easy to conclude that our revenue estimate for 1995 yields a 40% growth rate over 1994. (Note: Management is very conservative - keep in mind that the second half is stronger than the first half as stated in the recent 10k). In our opinion, revenues could exceed $50 million for 1995.
If we were to assign a PE multiple that represented half of EPLTF's growth rate; that is, a conservative 40% and a more aggressive rate of 50%, then we can assume that EPLTF should trade at around 25x. If we conclude that earnings for fiscal 95 equal .25 on the low side and .35 on the high side, then a very different price scenario emerges. If EPLTF were to sport a PE of 25 and earnings equalled .25 and .35, respectively, then our share valuation would equal $6.25 and $8.75.
During 1994 the distribution sector of the electronics industry posted strong growth for the third consecutive year. Distributors' sales increased an impressive 25% in 1994. This value in our opinion adds more ammo to why we can feel comfortable using a PE multiple of 25 for EPLTF in our evaluation.
More food for thought! The SIA (Semiconductor Industry Association) in its semiannual forecast on May 16, 1995, raised their 1995 world chip growth forecast to 40% ($142.3 billion vs. 1994's $101.9 billion).
Another indication why not only EPLTF should trade at higher multiples, but the whole group. According to Dataquest, the market for semiconductors will expand at a rate of 20+% to the year 2000 in the Asia Pacific region. Remember that EPLTF distributes to Hong Kong and China (China's potential is obviously enormous).
Why should you own EPLTF (NASDAQ Small Cap)?
1. Very few opportunities exist for small investors to buy shares in companies that are off- shore. EPLTF based in Hong Kong primarily does business in China (a huge emerging marketplace for computers, peripherals, telecommunication equipment and consumer electronic gear). Extremely Bullish.
2. The overall growth potential for Asian companies is far superior than North America and Europe. Extremely Bullish.
3. Fundamentally speaking, EPLTF trades at a sizeable discount with respect to its peers - very low PE and PSR value. As of June 30, 1995, EPLTF had .67/share in cash, only 144k in long term debt - growth should exceed 40% during 1995. Extremely Bullish.
4. There are only 6.5 million share outstanding with management controlling around 45%. Extremely Bullish.
5. Anticipate listing on NASDAQ's National Market System by year's end and start to report quarterly earnings results versus semiannual. Extremely Bullish.
6. Has a secure business relationship with world class giant Texas Instrument of HK to supply all chip needs to China. Extremely Bullish.
We believe that during the next five years based upon the expected growth rate of Pacific Rim area, which, of course, includes China, that EPLTF could easily exceed $120 million in revenue growth on the conservative side based upon a growth rate of 20%. It obviously could be substantially larger than that due to additional acquisitions of product lines or whole companies. The kicker that we spent no time discussing is EPLTF's golfing division. This division has the potential to blow all of our estimates away and give us the best hole-in-one that an investor ever dreamed of.
In our opinion, this situation over the long term has the potential to be a $15 - 20 stock. Obviously, things have to go right, but when you consider the most recent 18 months of growth, it is in our opinion that EPLTF is on the fairway to success. We believe that this situation belongs in all diverse emerging growth portfolios that would like some international exposure in the area of world that promises huge rewards for the patient investor.
EPLTF offers investors discounted fundamentals, high technology and China. Even if you are brain-dead, you should own some. We will be monitoring 10k shares in our model portfolio for percentage gain performance. We will also monitor EPLTF in our international and 900# portfolios.
Corporate Contact: Chris at 303-292-9419, FAX 303-292-2183; Corporate Headquarters Hong Kong: 011 852 24816022; Broker Contact: Mike Chesler at 1-800-331-1355; Greg Nelson at 1-800-453-9408..

FNDAMENTAL COMPARISON FOR SEMICONDUCTOR DISTRIBUTORS 
					 
		Symbol	Current	Earning/Share	PE Estimate		PSR
			Price	Estimate				Estimate
1. Electrocon International	EPLTF	$1.75	.25E	7x	.24
2. Marshall Industries	MI	$33.50	$2.47E	13.5x	.49
3. Pioneer - Standard Elect	PIOS	$28.00	$1.90E	14.7x		.43
4. Avnet		AVT	$54 3/4	$4.05E	13.5x		.47
5. Arrow Electronics	ARW	$57.25	$3.94E	14.5x		.53
					AVERAGE	14X		.48
1. EPTLF revenue estimates $45 mil for 1995, 6.5 mil shares outstanding.
2. MI is a leading distributor of computer microprocessors and memory and logic devices - revenue estimates for fiscal 96 - $1.3 billion - 17.4 mil shares outstanding.
3. PIOS - leading distributor of electrical components (semiconductors, microprocessors, and passives) and computer products (peripherals and software) - revenue estimated $1 billion for 1995 and 15.1 mil shares outstanding.
4. AVT is #2 distributor of semiconductor and computer equipment in the U.S. Revenue estimates $4.7 billion for fiscal 96 and 41 million shares outstanding
5. ARW is worlds largest distributor for electronic components and computer products to industrial and commercial customers. Revenue estimates for 1995 equals $5 billion. 46.7 million shares outstanding.
Select Financial Data - December 31
(STATED IN US$ - YEAR END DECEMBER 31
				SIX MONTHS JUNE 20TH
		1992 A	1993A	1994A 	1995E	1995A	1994A
Revenue		25.2 mil	26.5 mil	32.4 mil	45 mil	24.8 mil	14 mil
Net Income		.03	.02	(.05)	25	.14	(.065)
from continuing ops (loss)
Shares outstanding			7.86 mil	6.55 mil
Cash & cash equivalents					4.27 mil	5.08 mil
Long term debt					144K	19K
Shareholders Equity					1.4 mil	405K
Note: The exchange rate has remained fixed @ HK $7.80 to US $1.00 since 1983

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