Fujikon Industrial Holdings Ltd. (March 6, 2001)



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Key Data

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Stock code

927

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52 week H/L

$3.575/$0.72

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Current price

$0.67

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No. of issued shares

359,600,000

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Market cap

$258,912,000

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Estimated P/E:

FY00/4.58X FY01/3.85X FY02/3.34X

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Profit payout ratio:

FY00/40% FY01/40% FY02/40%

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Recommendation:

Long Term Buy

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The Company

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We have recently met with the company¡¦s management to update on the latest development on its business. We felt that current market¡¦s skeptical sentiment on industrial manufacturers has definitely compelled a hard time for the group¡¦s valuation given its, among other things, stable growth in earnings and strong financial position.

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The group is a leading ODM and OEM player in designing, manufacturing and sales of sophisticated digital sound and acoustic products. While exploring to develop own ODM products, the group¡¦s current renowned OEM clients include NEC, Sharp, Fujitsu and Kenwood etc.

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The group¡¦s management team is experienced, dedicated and diligent. Even we thought that the industrial outlook is neutral, we are still confident on the company strategy and future business.

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The group has a good track record of earning growth and adopts a consistent dividend payout policy. Its leveraged GP margin exceeds 30%, which is considerably high among other industrial manufacturers. Gearing ratio at the moment is close to 0%, NAV per share is $0.73 and cash per share is $0.278 for current financial year, which make it a good bargain.

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Business

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The group¡¦s production lines for electro-acoustic products are in Dongguan city, Guandong province. A new JV production facility is about to operate in Ningbo city, Zhejian province to produce PVC beads, extruded bare copper wires and tin plate wires for own production and sales. Material costs may thus be significantly reduced.

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In view of a possible economic downturn in the US, where is a major market for the group, it is now vigorously pursuing new partners in terms of product JV and setting up sales office in Japan. Targeted Japanese turnover will increase from currently 10% to over 20% in 2 year¡¦s time.

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New technology ¡§Blue-Tooth¡¨ has been intensively developed in wireless and short distance transmission of sound and audio products. The group¡¦s first blue-tooth acoustic product is planned to roll out to market in Q3 of 2001 with an anticipated profit margin of more than 25% to 30%.

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Summarized Financials

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FY00

FY01(E)

FY02(E)

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HK$(M)

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Turnover

427.4

518

621.6

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Net Profit

56.5

67.3

77.3

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EPS (cents)

$0.157

$0.187

$0.215

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NAV/shares (cents)

$0.388

$0.736

$0.81

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Risk Factors

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Even though the group is poised to sustain stable double digit growth in both profit and sales, it may still be impacted from declines of demand for telecom and PC products worldwide, most notably the US and European markets. Nor can the group be able to open up the China market in short run due to intellectual property right issue. A more negative scenario is it may not be able to keep up a double digit in the CAGR of sales and profit, but recent fall in share price may factor in such concerns.

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