Director, Pearl Hill Advisors

Nicholas Tanner

Director

Pearl Hill Advisors

Equity Bottom-Up

<p>This is effectively a one product company (OEM speakers) with one big client (Apple), who caused it problems to 3/17 given a change in the spec of its iphone headphone connector (and resulted in two downward revisions and operating profit coming in at a mere Y3bn). These problems were resolved and last year (3/18) profits jumped to Y9.3bn given a strong recovery in business with Apple. Longer term the company is trying to focus more on automobile business, where it has an established global position. However near term it remains too exposed to Apple sales and this year has been poor with operating profits, initially expected at Y5.5bn, being revised down to Y3bn (though this may now prove too low). As a result the shares are off over 55% since the start of the year. They now trade at 0.6x book. The company owns just under 13% in itself, which it may well cancel. It is on an EV/ebitda multiple of just under 4x and next year earnings will bounce, if only because of a massive staff layoff programme underway in Vietnam (which will save Y3.5bn). Some respite in the US/China trade fall should also help sentiment near term. Buy here, oversold and bad news all in the price.</p>

This is effectively a one product company (OEM speakers) with one big client (Apple), who caused it problems to 3/17 given a change in the spec of its iphone headphone connector (and resulted in two downward revisions and operating profit coming in at a mere Y3bn). These problems were resolved and last year (3/18) profits jumped to Y9.3bn given a strong recovery in business with Apple. Longer term the company is trying to focus more on automobile business, where it has an established global position. However near term it remains too exposed to Apple sales and this year has been poor with operating profits, initially expected at Y5.5bn, being revised down to Y3bn (though this may now prove too low). As a result the shares are off over 55% since the start of the year. They now trade at 0.6x book. The company owns just under 13% in itself, which it may well cancel. It is on an EV/ebitda multiple of just under 4x and next year earnings will bounce, if only because of a massive staff layoff programme underway in Vietnam (which will save Y3.5bn). Some respite in the US/China trade fall should also help sentiment near term. Buy here, oversold and bad news all in the price.

Foster (6794) Oversold and Bad Apple News in the Price.

Foster Electric

Foster (6794) Oversold and Bad Apple News in the Price.