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Fabrinet grows with trade warfare

Fabrinet (NYSE: FN) is a Thai company providing advanced services for precision optics, electromechanical manufacturing, and electronics manufacturing. The company, founded in 1999, offers a wide range of services in designing, supply chain management, manufacturing, complex assembly of printed circuit boards, modern packaging, assembly and testing equipment.

The company’s client base includes representatives from the automotive industry, medical, biotechnology, and metrology companies, as well as semiconductor manufacturers. For some of its partners, Fabrinet is the only supplier of components for precision instruments.

Fabrinet cooperates with such American companies as:

  • Lumentum Holdings Inc. (LITE)
  • NeoPhotonics Corporation (NPTN)
  • Infinera Corporation (INFN)
  • Intel Corporation (INTC)
  • Acacia Communications, Inc. (ACIA)
  • Finisar Corporation (FNSR)

Also in the list of partners is the French Valeo SA (FR.PA).

Growth factors

In connection with the trade war in the first three months of this year, deliveries from China decreased by 14%, as a result of which exports from Thailand increased by 5%. Now American companies are looking for alternatives to Chinese partners in Asian markets with comparable wages and prices. Due to the expansion of the partnership, Fabrinet will not have to seriously change its supply chain. There are no import duties for products from a Thai company, but it indirectly depends on a ban on Huawei products, since one of its suppliers is a Fabrinet client.

At the last conference call today, it became aware of the revision of part of the contracts, with the result that Infinera Corporation became the largest buyer of Fabrinet products and services with a share of more than 10%. The transfer of Infinera production from Berlin to Thailand can bring Fabrinet an additional $ 80 million in revenue for the current fiscal year. By 2020, the share of Infinera orders in Farbinet’s annual revenue may increase to 10% and amount to $ 180 million.

Management Fabrinet plans this summer to begin construction of additional production facilities, as soon as 70% of the Thai project is completed. The cost of it is estimated at $ 15-16 million per year for two years, which, with a net profit of $ 90-100 million, allows you to finance the project without attracting debt. For the past four years, Fabrinet’s operating margin has been 6-8%. Debt and liquidity ratios are high. Total debt at the end of the first quarter of 2019 is $ 64.2 million with a market capitalization of $ 1,588 million, net debt is $ 346.5 million.

Technical analysis

On the annual chart, we mark the beginning of growth after a sharp drop in share prices in May.

Fabrinet
Fabrinet

Based on the above information, we believe that now is an excellent moment for investors to take a long-term long position on Fabrinet shares. With low stock prices and medium volatility, such an investment can be an excellent long-term investment. The first goal for the price is the level of $ 62 per share, which was reached in April of this year.

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