TREK shares boosted by Verbatim settlement and possible settlement with others

SHARES OF Trek 2000 International were heavily traded yesterday with 2.1 million units changing hands. The stock price rose 6.7%, or 2 cents, to close at 32 cents following news that it had reached an out-of-court settlement with Verbatim Group.

Trek, the inventor of the Thumb Drive, had filed a complaint with the US International Trade Commission (ITC) on June 15 that Verbatim, among eight companies, had infringed on the patents for Trek’s USB flash drive.

Trek had sought to block the import of infringing USB flash drives that violate its intellectual property rights.

(Details of the complaint can be accessed at the ITC website).

DMG & Partners, in a report yesterday, said it believed that, as part of the settlement, Trek would receive a licensing fee ranging between 2% and 3% of Verbatim’s USB-flash drive sales figure.

(Verbatim sells removable storage media and related accessories all over the world, including Singapore.)

Henn Tan, chairman of Trek 2000. NextInsight file photo

This would translate into an additional profit of US$1m yearly (33% of FY10 earnings) for Trek, said DMG analysts Edison Chen and Terence Wong, CFA.

Henn Tan, Chairman and CEO of Trek 2000, said in a press release: “We expect the Verbatim settlement to have a positive impact on our financials in 2H2011.”

The DMG analysts expect the other companies that Trek had complained to the ITC about would also settle out of court. 

These are Imation Corp, IronKey, Kingston Technology, Patriot Memory, RITEK Corp and Advanced Media.

As part of the settlement with Verbatim, Trek grants it a non-exclusive, non-transferable, irrevocable license to make, have made, use, import, offer to sell and/or sell the Licensed Products worldwide during the term of the Licensed Patents.

The settlement – and the resulting boost in licensing income - was cited by DMG as part of a recent series of highly positive events that underline the bright future of Trek.

Source: DMG

DMG highlighted another two events:

1) wide adoption of the iSDIO card (Trek’s modified FluCard®) as it has become the industry standard

2) iSDIO card’s potential to expand beyond the camera market.

DMG reiterated its ‘buy’ recommendation on Trek shares with an unchanged target price of S$0.45 based on 7x FY12P/E.

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