PCI Limited (P19.SI) is a leading provider of electronics manufacturing services (EMS) to the high tech industry. The company started over 40 years ago as a printed circuit board manufacturer in Silicon Valley. Today, PCI serves blue-chip customers such as Motorola, Xerox, Tecom, Roche, Qualcomm, Lucent Technologies, Philips, and Bosch.
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With manufacturing facilities in Indonesia and China, PCI offers all services in the manufacturing outsourcing cycle, including engineering design and development, supply chain management, manufacturing, assembling, testing, and logistics.
62 percent of the revenues are generated in the US, followed by Ireland (18%) and China (9%). Sales in the US and Ireland grew significantly by 67 and 54 percent respectively over the last year. Three major customers account for around 43 percent of the revenues.
PCI was founded in 1972 and is headquartered in Singapore. The shares are listed on the main board of Singapore’s stock exchange since 1992 and can also be traded in Germany. Major shareholder is Chuan Hup Holdings Ltd, a company controlled by PCI’s executive chairman, Mr. Peh Kwee Chim, with an ownership of around 77 percent. 23 percent of the shares are in public hand.
With a workforce of 3,810 employees, PCI reported revenues of 289m USD and profits before tax of 22.9m USD in its fiscal year 2017/18. This is an increase of 45 and 77 percent respectively compared to the same period a year ago. In its fiscal year 2016/17, revenues and profits increased by 10 and 77 percent respectively. The operating margin of 8 percent lacks behind industry average and has room for improvements. PCI’s cash reserves increased by 45 percent to 58m USD over its fiscal year 2017/18.
The company has no debts and shows a solid balance sheet with good profitability and financial strength. The equity ratio is at 60 percent and the gearing, defined here as total liabilities to total equity, at 66 percent. Next quarterly results will be announced mid of November.
PCI’s shares are in an uptrend since August 2016 and gained more than 170 percent in value since, 35 percent increase alone this year. Trade war and the latest market decline have had little impact on the stock only. The company is priced at nine times earnings, 1.6 times book value and six times cash flow. The latest dividend yielded roughly 3 percent.
Our conclusion: PCI operates in an industry with abundant opportunities thanks to increases in complexity and new evolving markets, such as the Internet of Things. The EMS industry is expected to grow at more than five percent during the next five years. However, EMS providers are facing rising manufacturing costs and price pressures as well as rapidly evolving electronics components. Only companies with cost-saving strategies, flexible and responsive production solutions and the ability to act as technology enablers will be future winners. PCI seems on the right track.
The company shows a robust financial position with good profitability and financial strength and no debts. The valuation is reasonable. The company is well positioned in a strong competitive environment. Revenues and profits grew by 9 and 35 percent respectively over the last five years. Assuming a stable global economy with no major market crash in the next time, we expect the share price to increase another 15 to 20 percent over the next twelve months.
AIS Rating: ★★★★☆
| 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | |
|---|---|---|---|---|---|---|
| EPS (UScents) | 1.8 | 2.9 | 10.1 | 2.9 | 5.3 | 9.1 |
| Change | -61% | 63% | 255% | -72% | 85% | 71% |
| P/E | P/E SECTOR |
P/B | P/CF | Equity Ratio* |
ROE | LIAB./ Equity** |
Div YLD |
|---|---|---|---|---|---|---|---|
| 9 | 13 | 1.6 | 6 | 60% | 19% | 66% | 2.9% |
* Equity / Total Assets, ** Total Liabilities / Equity
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