Insights

Rising demand for electro-magnetic systems lights up Fabrinet’s share price

The New York Stock Exchange (NYSE) ranks as the largest stock exchange in the world with over 2,400 companies listed on it including some of the largest known brands like Coca-Cola, Walt Disney and Berkshire Hathaway.

As part of our ongoing series on international share trading ideas, Monex Securities performs regular research and analysis of blue chip and mid-cap companies. Our aim is to identify stocks that may fit into your trading and investment portfolio.

If you invested US$1,000 in Fabrinet (NYSE: FN) shares when it was listed on the New York Stock Exchange in June 2010, your shareholding would have been worth more than US$9,000 at the close of trade on 18 August 2021.

That’s a whopping performance from a company that is not a household name nor one of the market darlings such as Apple, Google, Amazon or Netflix.

If you are keen to invest in a mid-cap sized company that rides on the rising demand from different industries, Fabrinet seems to tick all the boxes.

The name Fabrinet may not be particularly familiar with many investors as the company services some specialised industries. Its products are built into electronics, optical and mechanical systems and you may not be aware that you are using them.

Imagine all the micro electro-magnetic boards and circuits that control the running of your car. There is a good chance that those circuit boards have been made and supplied by Fabrinet.

Who is Fabrinet and what does it do?

Fabrinet was founded in 2000 by David Tom Mitchell, one of the co-founders of Seagate Technology, which is one of the pioneers in computer disc storage.

The company set out to serve original equipment manufacturers on a contract basis.

Fabrinet introduced the “factory within a factory” operation module, a set-up where customers provided the equipment needed to build their products while Fabrinet provided the labour, logistics, manufacturing, and supply chain.

With only US$1 million of his own capital, Mitchell attracted additional investment. This enabled the company to take over Seagate’s lease of the Chokchai manufacturing site in Thailand. Seagate then became one of Fabrinet’s first customers.

Since its initial public offering in 2010, Fabrinet has established itself as a trusted manufacturing partner for the world’s most demanding original equipment manufacturers (OEMs).

Today, Fabrinet employs about 10,000 people across the globe that provide manufacturing, packaging, process technology, and supply chain services to various markets.

Fabrinet’s core markets

Aviation/ Aerospace – Fabrinet offers advanced manufacturing capabilities for both the aerospace and transportation markets.

Think about the micro electro-magnetic systems that run planes and most likely Fabrinet products are inside those components.

Automotive – the car/automotive industry is another major market for Fabrinet. The company offers a full range of services supporting electro-mechanical and sensor technologies for the automotive industry including wire bonding to full box build assembly.

This means that every time you drive your car there are likely to be many Fabrinet components at work. For example, Fabrinet produces system sensors that are critical in vehicle safety, fuel efficiency, emission tracking and overall mechanical stability.

Medical devices and life sciences –

Fabrinet also makes medical electronics devices that support precision electro-mechanical assembly, optics, photonics, and electronics integration in systems and consumables.

Imagine the medical and lab tests that you go through that use high-precision machines. Most likely Fabrinet systems are the ones running those scanners, sensors, lasers and other instruments.

Optical

Fabrinet offers a full range of vertically designed optical products and services from lens manufacturing, coatings, and optomechanical packaging to passive and active alignment.

Strong financial results

In its most recent financial results, Fabrinet reported fourth-quarter revenue of US$ 509.6 million, which exceeded market expectations. The company ends a record year with a revenue of US$1.88 billion.

In his statement during the reporting season, Seamus Grady, Chief Executive Officer of Fabrinet, said, “We had a strong finish to a record year with revenue and profitability that exceeded our guidance ranges. Demand trends across our business continue to be healthy, with particular fourth-quarter strength from the telecom market.”

He added that the company’s efficient execution helped to deliver excellent operating margins.

Revenue for Q4 of fiscal year 2021 was US$ 509.6 million, compared to US$ 405.1 million the year before.

Analysts’ views on Fabrinet

One of the market analysts following Fabrinet said: “Fabrinet might not be a large-cap stock, but it saw a decent share price growth in the teens level on the NYSE over the last few months.”

The analyst added: “Fabrinet is still a bargain right now. My valuation model shows that the intrinsic value for the stock is $132.48, but it is currently trading at US$90.68 on the share market, meaning that there is still an opportunity to buy now.”

Another analyst who commented after the release of the strong financials said: “Since Fabrinet is currently undervalued, it may be a great time to accumulate.”

The analyst pointed out that given the company’s optimistic outlook on the horizon, it seems like this growth has not yet been fully factored into the share price.

Technical Analysis: What the charts are saying about Fabrinet’s share price movement

After consolidating at highs during the months of June and July, mid-August saw a burst of new buying activity causing the stock price to break to new highs on significantly elevated volume. A record high close of US$104.05 on Friday 20-August was simply an extension of the firm underlying upward trend that has dominated since the beginning of 2018.

In the near-term, minor dips are likely to find initial support above the US$90 to US$87 zone. While above this support level we would view dips as buying opportunities in anticipation of additional gains to new record highs.

Conclusion

Given the ongoing and rising demand for micro electromagnetic systems in different industries and Fabrinet’s well-established track record as a supplier to OEMs, the uptrend in the share price looks set to continue.

Risk Disclaimer: The information above is of general nature only and does not take into account your objectives, financial situation or investment needs. Prior to you make an investment decision, please make sure you carefully read and fully understand our Financial Services GuideTerms and ConditionsPrivacy Policy and other relevant documents that you can obtain from this website. Monex Securities Australia Pty Ltd (AFSL No. 363972; ABN 84 142 210 179) is the Financial services provider. Financial products trading carries risks and may not be suitable for all investors. You are strongly recommended to seek independent financial advice before making any investment decisions.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;


To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.


An active and funded account with a positive trading balance is required to continue to have access to the tools;


Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;


Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!