Recommendation: BUY
Sector: Electronics Manufacturing Services (EMS)
Home Country: Singapore
Listed On: NASDAQ
Data provided are Consolidated US GAAP figures in bln US$ if not indicated otherwise.
Total Revenue Fiscal Year ended March 2006: 15.3 bln US$
Net Income Fiscal Year ended March 2006: 141 mln US$
Debt/Equity Ratio March 31, 2006: 1.06
Share Price May 10th, 2006: 12.18 US$
Earnings per Share (diluted) Fiscal Year ended March 2006: 0.24 US$
Expected Earnings per share Fiscal Year ending March:
2007: 0.70
2008: 0.80
2009: 0.92
Price/Earnings Ratio Fiscal Year ended March 2006: 49
Expected Price/Earnings Ratio: (for actual share price with expected EPS)
2007: 17.4
2008: 15.2
2009: 13.2
Target P/E Ratio 2007: 20
Target Share Price End 2007: 18.4
(increase of 51% compared to actual share price)
Company Profile
Flextronics International Ltd. (Flextronics) is a provider of advanced electronics manufacturing services to original equipment manufacturers (OEMs) in various industries, such as handheld devices, computer and office automation, communications infrastructure, consumer devices, information technology (IT) infrastructure, among others. The Company provides a range of vertically integrated global supply chain services, through which it designs, builds and ships packaged products for its OEM customers. Service offerings include design services, printed circuit board (PCB) and flexible circuit fabrication, systems assembly and manufacturing, logistics, and after-market services. As of March 31, 2005, Flextronics operates in over 30 countries. Net sales in the Americas, Europe and Asia represented 17%, 35% and 48% of its total net sales, respectively.
Analysis
Flextronics went through mayor restructurings during the last couple of month as it divested its network services division and its semiconductor division in September 2005 and in the end of April 2006 announced its definitive agreement to sell its software development and solutions business to an affiliate of Kohlberg Kravis & Co..
Flextronic can now focus its resources on its core Electronics Manufacturing Services business. Management has given guidance that fiscal year 2006 has been very strong in terms of new business from both new and existing customers and that should show up in the numbers of the second half of calendar year 2006.
At A1GLOBALINVESTOR.com we believe that Flextronics as the leading contract electronics maker should be able to profit from its restructuring, its focus on its core business and the positive industry environment.
Therefore we see a continued growth in EPS as stated above. Our estimated realistic P/E ratio for 2007 is 20 as Flextronixs should be able to generate double digit growth rates in revenues and net income for the coming years. The multiple is not higher, as we are not expecting growth rates of above 20%.
With our EPS estimates and the P/E ratio we arrive at our target share price of US$ 18.4 , representing an increase of 51% compared to the actual share price. Therefore we put a BUY recommendation on Flextronics.