|
Related Topics
|
Category: Stock Market and Fabrinet
Date: 25 August 2019 Stock Price: $47.59 Latest financial results: We take a look at the 4th quarter 2019 financial results of Fabrinet the manufacturer of precision optical, electro-optical and other manufactured goods.
|
About Fabrinet
We specialize in precision optical, electro-optical, sophisticated electronic PCBA and electro-mechanical process technologies for high-mix, any-volume production. Our extraordinary customer service, flexibility and skill in managing complex operations in lower cost Southeast Asia has made us the trusted partner of the world’s most demanding OEMs.
Fabrinet is the trusted manufacturing partner of the world’s most demanding OEMs. Our customers include technological leaders from a diverse array of markets; from aerospace, automotive, industrial, and laser products to medical, life science, and optical electronics. Furthermore, we offer a broad range of applied technologies such as precision electro-mechanical and electro-optical assembly, sensor manufacturing, and advanced packaging.
For each market, Fabrinet has developed industry-leading capabilities in new product introduction, product industrialization, continuous process improvement, and supply chain management. In each market, we offer full product lifecycle support across a range of high-mix, high-value, and complex products.
Fabrinet is not a typical contract manufacturer. We forge long-term partnerships with our customers to create value while delivering a true competitive advantage. With our unique, vertically integrated manufacturing processes and advanced process technologies, we can accelerate our customers’ time to market. Fabrinet is able to provide all of this while continuously maintaining a competitive cost advantage throughout the lifecycle of a product.
Fabrinet is dedicated to ensuring full compliance with the quality and regulatory system requirements for each market we serve. This includes TL 9000; ISO 9001, 14001, 13485, and 18001; TS 16949; AS 9100; and OSHA.
Fabrinet offers a full range of services. We have the capabilities required to support some of the most demanding markets, technologies, and business models. Our services are uniquely, vertically integrated; from wafer processing through systems integration. We provide our customers with a seamless transition from a product’s prototype through its final production.
We offer full support for testing and process development. We also support design for manufacturing and a full-turnkey supply chain. This allows us to help with the development and continuous improvement of a product. Our services come with Fabrinet’s focus on quality, flexibility, and competitiveness, all of which we tailor to match the unique needs of our customers. The image below shows the type of products that Fabrinet manufactures.
Fabrinet is the trusted manufacturing partner of the world’s most demanding OEMs. Our customers include technological leaders from a diverse array of markets; from aerospace, automotive, industrial, and laser products to medical, life science, and optical electronics. Furthermore, we offer a broad range of applied technologies such as precision electro-mechanical and electro-optical assembly, sensor manufacturing, and advanced packaging.
For each market, Fabrinet has developed industry-leading capabilities in new product introduction, product industrialization, continuous process improvement, and supply chain management. In each market, we offer full product lifecycle support across a range of high-mix, high-value, and complex products.
Fabrinet is not a typical contract manufacturer. We forge long-term partnerships with our customers to create value while delivering a true competitive advantage. With our unique, vertically integrated manufacturing processes and advanced process technologies, we can accelerate our customers’ time to market. Fabrinet is able to provide all of this while continuously maintaining a competitive cost advantage throughout the lifecycle of a product.
Fabrinet is dedicated to ensuring full compliance with the quality and regulatory system requirements for each market we serve. This includes TL 9000; ISO 9001, 14001, 13485, and 18001; TS 16949; AS 9100; and OSHA.
Fabrinet offers a full range of services. We have the capabilities required to support some of the most demanding markets, technologies, and business models. Our services are uniquely, vertically integrated; from wafer processing through systems integration. We provide our customers with a seamless transition from a product’s prototype through its final production.
We offer full support for testing and process development. We also support design for manufacturing and a full-turnkey supply chain. This allows us to help with the development and continuous improvement of a product. Our services come with Fabrinet’s focus on quality, flexibility, and competitiveness, all of which we tailor to match the unique needs of our customers. The image below shows the type of products that Fabrinet manufactures.
Financial overview
Numbers we are interested in: (for the quarter)
- Total revenues $405.127 million (up from $ 345.327 million for the same quarter of the previous year)
- Gross profit $ 46.626 million (up from $38,918 million for the same quarter of the previous year)
- Net income $ 32,957 million (up from $ 22,768 million for the same quarter of the previous year)
- Diluted net income per share: $ 0.88 (up from $0.60 for the same quarter of the previous year)
- Weighted-average shares in issue: 37.511 million (down from 37.766 million for the same quarter of the previous year)
- Net income per share: $ 0.89 (up from $ 0.62 a share for the same quarter of the previous year)
- Cash and cash equivalents: $ 180.839 million (up from $ 158.102 million)
- Cash and equivalents pe share: $4.82 (or 10.1% of the group's share price)
- Trade accounts receivable, net: $260.602 million (up from $246.912 million)
- Inventory, net: $293,612 (up from $257,687 for the prior year)
- Total Shareholders’ Equity: $863.099 million (up from $740.939 million)
- Net asset value per share: $23
- Price to Book value: 2.07
- Cash generated from operations: $120.955 million
- Cash generated per share: $3.22 (or 6.7% of the group's share price)
Fabrinet (NYSE:FN) management commentary on the results and earnings guidance
Overview
We provide advanced optical packaging and precision optical, electro-mechanical and electronic manufacturing services to original equipment manufacturers (“OEMs”) of complex products such as optical communication components, modules and sub-systems, industrial lasers, automotive components, medical devices and sensors. We offer a broad range of advanced optical and electro-mechanical capabilities across the entire manufacturing process, including process design and engineering, supply chain management, manufacturing, complex printed circuit board assembly, advanced packaging, integration, final assembly and testing. Although we focus primarily on low-volume production of a wide variety of high complexity products, which we refer to as “low-volume, high-mix,” we also have the capability to accommodate high-volume production. Based on our experience with and positive feedback from our customers, we believe we are a global leader in providing these services to the optical communications, industrial lasers and automotive markets. Our customer base includes companies in complex industries that require advanced precision manufacturing capabilities such as optical communications, industrial lasers, automotive and sensors. The products that we manufacture for our OEM customers include selective switching products; tunable transponders and transceivers; active optical cables; solid state, diode-pumped, gas and fiber lasers; and sensors. In many cases, we are the sole outsourced manufacturing partner used by our customers for the products that we produce for them. We also design and fabricate application-specific crystals, lenses, prisms, mirrors, laser components, and substrates (collectively referred to as “customized optics”) and other custom and standard borosilicate, clear fused quartz, and synthetic fused silica glass products (collectively referred to as “customized glass”). We incorporate our customized optics and glass into many of the products we manufacture for our OEM customers, and we also sell customized optics and glass in the merchant market.
Fiscal years
We utilize a 52-53 week fiscal year ending on the Friday in June closest to June 30. Fiscal year 2019 ended on June 28, 2019 and consisted of 52 weeks. Fiscal year 2018 ended on June 29, 2018 and consisted of 52 weeks. Fiscal year 2017 ended on June 30, 2017 and consisted of 53 weeks.
Revenues
We believe our ability to expand our relationships with existing customers and attract new customers is due to a number of factors, including our broad range of complex engineering and manufacturing service offerings, flexible low-cost manufacturing platform, process optimization capabilities, advanced supply chain management, excellent customer service and experienced management team. Although we expect the prices we charge for our manufactured products to decrease over time (partly as a result of competitive market forces), we still believe we will be able to maintain favorable pricing for our services because of our ability to reduce cycle time, adjust our product mix by focusing on more complicated products, improve product quality and yields, and reduce material costs for the products we manufacture. We believe these capabilities will enable us to help our OEM customers reduce their manufacturing costs while maintaining or improving the design, quality, reliability and delivery times of their products.
Because we depend upon a small number of customers for a significant percentage of our total revenues, a reduction in orders from, a loss of, or any other adverse actions by, any one of these customers would reduce our revenues and could have a material adverse effect on our business, operating results and share price. Moreover, our customer concentration increases the concentration of our accounts receivable and payment default by any of our key customers will negatively impact our exposure. Many of our existing and potential customers have substantial debt burdens, have experienced financial distress or have static or declining revenues, all of which may be exacerbated by the continued uncertainty in the global economies. Certain customers have gone out of business or have been acquired or announced their withdrawal from segments of the optics market.
We generate significant accounts payable and inventory for the services that we provide to our customers, which could expose us to substantial and potentially unrecoverable costs if we do not receive payment from our customers. Therefore, any financial difficulties that our key customers experience could materially and adversely affect our operating results and financial condition by generating charges for inventory write-offs, provisions for doubtful accounts, and increases in working capital requirements due to increased days inventory and in accounts receivable.
Furthermore, reliance on a small number of customers gives those customers substantial purchasing power and leverage in negotiating contracts with us. In addition, although we enter into master supply agreements with our customers, the level of business to be transacted under those agreements is not guaranteed. Instead, we are awarded business under those agreements on a project-by-project basis. Some of our customers have at times significantly reduced or delayed the volume of manufacturing services that they order from us. If we are unable to maintain our relationships with our existing significant customers, our business, financial condition and operating results could be harmed
We provide advanced optical packaging and precision optical, electro-mechanical and electronic manufacturing services to original equipment manufacturers (“OEMs”) of complex products such as optical communication components, modules and sub-systems, industrial lasers, automotive components, medical devices and sensors. We offer a broad range of advanced optical and electro-mechanical capabilities across the entire manufacturing process, including process design and engineering, supply chain management, manufacturing, complex printed circuit board assembly, advanced packaging, integration, final assembly and testing. Although we focus primarily on low-volume production of a wide variety of high complexity products, which we refer to as “low-volume, high-mix,” we also have the capability to accommodate high-volume production. Based on our experience with and positive feedback from our customers, we believe we are a global leader in providing these services to the optical communications, industrial lasers and automotive markets. Our customer base includes companies in complex industries that require advanced precision manufacturing capabilities such as optical communications, industrial lasers, automotive and sensors. The products that we manufacture for our OEM customers include selective switching products; tunable transponders and transceivers; active optical cables; solid state, diode-pumped, gas and fiber lasers; and sensors. In many cases, we are the sole outsourced manufacturing partner used by our customers for the products that we produce for them. We also design and fabricate application-specific crystals, lenses, prisms, mirrors, laser components, and substrates (collectively referred to as “customized optics”) and other custom and standard borosilicate, clear fused quartz, and synthetic fused silica glass products (collectively referred to as “customized glass”). We incorporate our customized optics and glass into many of the products we manufacture for our OEM customers, and we also sell customized optics and glass in the merchant market.
Fiscal years
We utilize a 52-53 week fiscal year ending on the Friday in June closest to June 30. Fiscal year 2019 ended on June 28, 2019 and consisted of 52 weeks. Fiscal year 2018 ended on June 29, 2018 and consisted of 52 weeks. Fiscal year 2017 ended on June 30, 2017 and consisted of 53 weeks.
Revenues
We believe our ability to expand our relationships with existing customers and attract new customers is due to a number of factors, including our broad range of complex engineering and manufacturing service offerings, flexible low-cost manufacturing platform, process optimization capabilities, advanced supply chain management, excellent customer service and experienced management team. Although we expect the prices we charge for our manufactured products to decrease over time (partly as a result of competitive market forces), we still believe we will be able to maintain favorable pricing for our services because of our ability to reduce cycle time, adjust our product mix by focusing on more complicated products, improve product quality and yields, and reduce material costs for the products we manufacture. We believe these capabilities will enable us to help our OEM customers reduce their manufacturing costs while maintaining or improving the design, quality, reliability and delivery times of their products.
Because we depend upon a small number of customers for a significant percentage of our total revenues, a reduction in orders from, a loss of, or any other adverse actions by, any one of these customers would reduce our revenues and could have a material adverse effect on our business, operating results and share price. Moreover, our customer concentration increases the concentration of our accounts receivable and payment default by any of our key customers will negatively impact our exposure. Many of our existing and potential customers have substantial debt burdens, have experienced financial distress or have static or declining revenues, all of which may be exacerbated by the continued uncertainty in the global economies. Certain customers have gone out of business or have been acquired or announced their withdrawal from segments of the optics market.
We generate significant accounts payable and inventory for the services that we provide to our customers, which could expose us to substantial and potentially unrecoverable costs if we do not receive payment from our customers. Therefore, any financial difficulties that our key customers experience could materially and adversely affect our operating results and financial condition by generating charges for inventory write-offs, provisions for doubtful accounts, and increases in working capital requirements due to increased days inventory and in accounts receivable.
Furthermore, reliance on a small number of customers gives those customers substantial purchasing power and leverage in negotiating contracts with us. In addition, although we enter into master supply agreements with our customers, the level of business to be transacted under those agreements is not guaranteed. Instead, we are awarded business under those agreements on a project-by-project basis. Some of our customers have at times significantly reduced or delayed the volume of manufacturing services that they order from us. If we are unable to maintain our relationships with our existing significant customers, our business, financial condition and operating results could be harmed
Fabrinet (NYSE:FN) stock price history
The image below obtained from Google shows the stock price history of Fabrinet (NYSE:FN) for the last 5 years. Its been a good few years for Fabrinet share with the stock price going from under $20 to trading at its current level of $47.59 a share. The question one has to ask is whether the stock still has room to go even higher or is it trading at lofty valtuations?
Fabrinet (NYSE:FN) stock valuation
So what are Fabrinet shares worth? Based on their current set of financial results, in which the group showed strong cash generation and a solid amount of cash lying on their balance sheet (roughly 10% of their market capital being held in cash and equivalents). Earnings per share also showed strong growth compared to the same period of last year. All things considered we value the group's shares at $62.10 a share. So at its current price it does offer a but of value compared to our target price for the group. However the slowing US economy might place a hamper on short term demand for the group's products and we recommend seeing Fabrinet as a long term play to look at once more clarity and guidance regarding the strength of the US economy and the tariff war is available. At this point the trade war and a slowing US economy could prove to be a drag on the group's future earnings.