Fabrinet reports 13.3% Net Income decline in 2018 and 3.4% Revenue decline
08/20/2018 • About Fabrinet (
$FN) • By InTwits
Fabrinet reported FY2018 financial results today. Here are the key drivers of the company's long term financial model:
- Fabrinet has low CAPEX intensity: 5 year average CAPEX/Revenue was 3.9%. At the same time it's in pair with industry average of 3.6%
- CAPEX is quite volatile: $34m in FY2018, $68m in FY2017, $41m in FY2016, $51m in FY2015, $11m in FY2014
- The company has highly profitable business model: ROIC is 12.0%
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
The company's Revenue decreased on 3.4%. Revenue decline showed acceleration in FY18Q4 - it was 6.8% YoY. During FY2014-FY2018 Revenue growth topped in FY2017 at 45.4%. Having declining revenue the company managed to increase EBITDA margin. EBITDA Margin increased on 3.9 pp from 18.2% to 22.1% in 2018.
Gross Margin decreased slightly on 0.89 pp from 12.1% to 11.2% in FY2018. During FY2014-FY2018 Gross Margin topped in FY2016 at 12.2% and was declining since that time. SG&A as a % of Revenue showed almost no change in FY2018. During FY2014-FY2018 SG&A as a % of Revenue topped in FY2015 at 5.1% and was declining since that time. Stock Based Compensation (SBC) as a % of Revenue showed almost no change in FY2018. SBC as a % of Revenue followed a growing trend at 0.25 pp per annum in the last 5 years.
Net Income margin decreased slightly on 0.70 pp from 6.8% to 6.1% in FY2018. The efficient tax rate was 4.4% in FY2018 while the average for the last five years was 5.6%.
Investments (CAPEX, working capital and M&A)
Fabrinet's CAPEX/Revenue was 2.5% in FY2018. Fabrinet's CAPEX/Revenue decreased on 4.2 pp from 6.6% in FY2015 to 2.5% in FY2018. For the last three years the average CAPEX/Revenue was 3.8%.
Accounts receivable as a % of Revenue decreased slightly on 0.61 pp from 18.6% to 18.0% in FY2018. Inventories as a % of Revenue increased slightly on 2.0 pp from 16.8% to 18.8% in FY2018. Accounts payable as a % of Revenue increased slightly on 0.83 pp from 17.2% to 18.1% in FY2018.
Return on investment
The company operates at good ROIC (12.0%) while ROE is low (11.8%). ROIC decreased on 3.4 pp from 15.4% to 12.0% in FY2018. ROE decreased on 3.9 pp from 15.7% to 11.8% in FY2018.
Leverage (Debt)
Debt level is -0.8x Net Debt / EBITDA and 0.5x Debt / EBITDA. Debt dropped on 10.1% while cash surged on 18.1%.
Fabrinet has good short term financial stability: Interest coverage ratio (ICR) is 26.0x. Fabrinet has no short term refinancing risk: cash is higher than short term debt (4,271.9%).
Average interest expence paid by the company was 5.5% in FY2018.
Valuation and dividends
The company's trades at EV/EBITDA 13.3x and P/E 20.6x.
Management team
Seamus Grady is a Fabrinet's CEO. Seamus Grady is a founder and has spent 1 year with the company. CEO total compensation was
$16,657,459 in FY2018 which included
$1,492,500 salary. The company's CFO Toh-Seng Ng has spent 7 years with the company.
Insider ownership is 1.7%. Insider ownership didn't change in 2018.
The company has 10,579 employees. The number of employees showed almost no change in 2018. Average revenue per employee in FY2018 was
$129,684 and it decreased on 3.8%.
Financial and operational results
FY ended 06/29/2018
Fabrinet ($FN) key annual financial indicators| mln. $ | 2014 | 2015 | 2016 | 2017 | 2018 | 2018/2017 |
|---|
P&L
|
|---|
| Revenue | 678 | 774 | 977 | 1,420 | 1,372 | -3.4% |
| Gross Profit | 74 | 88 | 120 | 171 | 153 | -10.5% |
| SG&A | 28 | 39 | 50 | 66 | 58 | -11.9% |
| EBITDA | 102 | 60 | 87 | 130 | 123 | -5.2% |
| EBIT | 91 | 47 | 70 | 106 | 94 | -11.3% |
| Interest expence | 1 | 1 | 2 | 3 | 4 | 8.6% |
| Tax | 1 | 4 | 6 | 7 | 4 | -42.7% |
| Net Income | 92 | 44 | 62 | 97 | 84 | -13.3% |
| Stock Based Compensation | 6 | 8 | 10 | 27 | 23 | -14.8% |
Balance Sheet
|
|---|
| Cash | 233 | 113 | 143 | 134 | 158 | 18.1% |
| Accounts Receivable | 101 | 135 | 196 | 264 | 247 | -6.6% |
| Inventory | 125 | 131 | 181 | 239 | 258 | 8.0% |
| Accounts Payable | 101 | 115 | 172 | 215 | 220 | 2.3% |
| Short Term Debt | 6 | 36 | 24 | 49 | 4 | -92.4% |
| Long Term Debt | 11 | 5 | 36 | 24 | 61 | 159.0% |
Cash flow
|
|---|
| Capex | 11 | 51 | 41 | 68 | 34 | -50.4% |
Ratios
|
|---|
| Revenue growth | 5.7% | 14.1% | 26.3% | 45.4% | -3.4% | |
| EBITDA growth | 25.9% | -41.1% | 45.0% | 48.7% | -5.2% | |
|
|---|
| Gross Margin | 11.0% | 11.3% | 12.2% | 12.1% | 11.2% | -0.9% |
| EBITDA Margin | 15.0% | 7.8% | 8.9% | 9.1% | 9.0% | -0.2% |
| EBIT Margin | 13.5% | 6.1% | 7.1% | 7.5% | 6.8% | -0.6% |
| SG&A, % of revenue | 4.1% | 5.1% | 5.1% | 4.6% | 4.2% | -0.4% |
| SBC, % of revenue | 0.8% | 1.0% | 1.0% | 1.9% | 1.6% | -0.2% |
| Net Income Margin | 13.5% | 5.6% | 6.3% | 6.8% | 6.1% | -0.7% |
| CAPEX, % of revenue | 1.6% | 6.6% | 4.2% | 4.8% | 2.5% | -2.3% |
|
|---|
| ROIC | 22.9% | 9.8% | 12.3% | 15.4% | 12.0% | -3.4% |
| ROE | 24.4% | 9.6% | 12.0% | 15.7% | 11.8% | -3.9% |
| Net Debt/EBITDA | -2.1x | -1.2x | -0.9x | -0.5x | -0.8x | -0.3x |
| Interest expence / Average debt | 4.3% | 2.2% | 3.1% | 5.0% | 5.5% | 0.5% |
People
|
|---|
| Insider ownership | 1.7% | 1.7% | 1.7% | 1.7% | 1.7% | 0.0% |
| Employees | | | 9,330 | 10,541 | 10,579 | 0.4% |
| Revenue/Employee, th. $ | | | 105 | 135 | 130 | -3.8% |
Fabrinet ($FN) key quoterly financial indicators
| mln. $ | FY18Q1 | FY18Q2 | FY18Q3 | FY18Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 357 | 337 | 332 | 345 | | 7.6% | -4.0% | -9.4% | -6.8% |
| EBITDA | 32 | 29 | 32 | 30 | | 11.0% | -6.3% | -4.9% | -17.3% |
| Net Income | 21 | 19 | 21 | 23 | | -7.6% | -23.6% | -2.8% | -16.9% |
Balance Sheet
|
|---|
| Cash | 112 | 135 | 142 | 158 | | 5.5% | 57.5% | 4.2% | 18.1% |
| Short Term Debt | 48 | 53 | 53 | 4 | | 26.9% | 36.9% | 8.1% | -92.4% |
| Long Term Debt | 20 | 17 | 13 | 61 | | -40.8% | -45.2% | -51.1% | 159.0% |
Ratios
|
|---|
| Gross Margin | 11.3% | 11.0% | 11.1% | 11.3% | | -0.6% | -1.2% | -0.9% | -0.8% |
| EBITDA Margin | 9.0% | 8.6% | 9.5% | 8.8% | | 0.3% | -0.2% | 0.5% | -1.1% |
| Net Income Margin | 5.9% | 5.7% | 6.3% | 6.6% | | -1.0% | -1.5% | 0.4% | -0.8% |
Peers in Electronic Manufacturing Servi
Below we provide Fabrinet benchmarking against other companies in Electronic Manufacturing Servi industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.
Top companies by Revenue growth, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| RF Industries, Ltd. ($RFIL) | | 41.9% | -7.8% | -24.0% | 118.4% |
| Alpine 4 Technologies Ltd ($ALPP) | | | 35,893.8% | 5.8% | 71.5% |
| Kemet Corporation ($KEM) | | -1.3% | -10.7% | 3.1% | 58.4% |
| SMTC Corporation ($SMTX) | | -3.5% | -23.9% | -17.1% | 55.2% |
| Deswell Industries, Inc. ($DSWL) | | -7.0% | 17.1% | -0.1% | 36.3% |
| |
|---|
| Median (27 companies) | | 2.6% | 1.2% | 1.9% | 9.8% |
|---|
| Fabrinet ($FN) | | 14.1% | 26.3% | 45.4% | -3.4% |
Top companies by Gross margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Neonode Inc. ($NEON) | 68.2% | 66.0% | 86.9% | 77.1% | 89.2% |
| Andrea Electronics Corp ($ANDR) | 83.8% | 99.1% | 88.5% | 96.2% | 70.4% |
| Data I/O Corporation ($DAIO) | 53.9% | 52.4% | 55.0% | 58.9% | 59.4% |
| IPG Photonics Corporation ($IPGP) | 54.1% | 54.6% | 54.9% | 56.6% | 54.8% |
| CTS Corporation ($CTS) | 32.2% | 33.2% | 35.4% | 33.2% | 35.1% |
| |
|---|
| Median (27 companies) | 14.7% | 19.4% | 22.2% | 15.8% | 15.2% |
|---|
| Fabrinet ($FN) | 11.0% | 11.3% | 12.2% | 12.1% | 11.2% |
Top companies by EBITDA margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| IPG Photonics Corporation ($IPGP) | 41.5% | 42.4% | 41.8% | 44.7% | 40.9% |
| TE Connectivity Ltd. ($TEL) | 19.7% | 19.3% | 20.9% | 20.4% | 21.4% |
| CTS Corporation ($CTS) | 14.7% | 9.0% | 20.7% | 14.0% | 17.8% |
| Methode Electronics, Inc. ($MEI) | 12.6% | 15.4% | 16.5% | 16.5% | 16.1% |
| RF Industries, Ltd. ($RFIL) | 12.4% | 6.7% | -12.1% | 3.1% | 15.9% |
| |
|---|
| Median (27 companies) | 4.4% | 5.2% | 4.8% | 4.5% | 4.7% |
|---|
| Fabrinet ($FN) | 15.0% | 7.8% | 8.9% | 9.1% | 9.0% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Maxwell Technologies, Inc. ($MXWL) | 3.7% | 2.5% | 4.9% | 6.6% | 11.3% |
| IPG Photonics Corporation ($IPGP) | 11.5% | 7.8% | 12.6% | 9.0% | 11.0% |
| eMagin Corporation ($EMAN) | 5.8% | 4.7% | 6.7% | 6.2% | 8.8% |
| TE Connectivity Ltd. ($TEL) | 5.3% | 4.9% | 5.3% | 5.6% | 6.7% |
| CTS Corporation ($CTS) | 3.2% | 2.5% | 5.2% | 4.3% | 6.1% |
| |
|---|
| Median (27 companies) | 2.7% | 2.4% | 2.8% | 2.7% | 2.4% |
|---|
| Fabrinet ($FN) | 1.6% | 6.6% | 4.2% | 4.8% | 2.5% |
Top companies by ROIC, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| RF Industries, Ltd. ($RFIL) | 8.5% | 4.6% | -18.7% | 0.9% | 29.2% |
| IPG Photonics Corporation ($IPGP) | 27.0% | 27.8% | 25.1% | 29.9% | 22.9% |
| Methode Electronics, Inc. ($MEI) | 19.7% | 26.1% | 22.7% | 20.8% | 19.2% |
| TE Connectivity Ltd. ($TEL) | 17.3% | 15.1% | 15.9% | 16.2% | 18.4% |
| Kemet Corporation ($KEM) | -2.8% | 3.8% | 6.2% | 6.9% | 16.9% |
| |
|---|
| Median (29 companies) | 4.4% | 4.9% | 6.2% | 4.2% | 6.4% |
|---|
| Fabrinet ($FN) | 22.9% | 9.8% | 12.3% | 15.4% | 12.0% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Alpine 4 Technologies Ltd ($ALPP) | | | | 34.1x | 65.7x |
| SigmaTron International, Inc. ($SGMA) | 2.7x | 4.1x | 2.4x | 3.4x | 16.0x |
| SMTC Corporation ($SMTX) | 3.5x | 1.8x | 1.0x | | 11.3x |
| IEC Electronics Corp. ($IEC) | 7.1x | 14.0x | 2.0x | 5.6x | 4.9x |
| Key Tronic Corporation ($KTCC) | 0.2x | 3.4x | 2.6x | 2.5x | 3.9x |
| |
|---|
| Median (22 companies) | 0.2x | -0.2x | 0.6x | 0.5x | 0.5x |
|---|
| Fabrinet ($FN) | -2.1x | -1.2x | -0.9x | -0.5x | -0.8x |
