Monday, January 28, 2008
A Comparision Between 2 Headphone Makers - part ii
Today I'll finish the series off with Fujikon (927).
1st difference of Fujikon from AAC is it makes earphones connected to a phone, not built-in, e.g. blue tooth hand-free ear pieces that cling to your ear, and audio-grade stereo head phones that can be used for music as well. Some has radio built in and some can be used to control a phone and an ipod simultaneously. These are lower value-added products and hence have a lower margin. But I suspect there's replacement demand since some people lose their headphones, some will keep one in their cars, some buy for improved audio quality when new model becomes available. Fujikon is also a supplier to Nokia for earphones and hence its business has been prospering while Motorola is losing market share.
Fujikon also makes premium audio-grade headphones for home audio and hand-held electronics. Other than the organic growth of the market helped by popularity of mp3 music, new headphones with wireless and noise-cancelling ability creates new demand and increases unit price. Fujikon actually has a much higher margin (20% vs. 8.5%) in its audio products than mobile phone products. In absolute term audio products also contribute more to the gross profit.
Besides Fujikon makes headphones for Microsoft's Xbox 360 consoles but that's not a lot of contribution by comparison. Audio and electronic parts, mostly volume business with low margin, make up the rest of the business.
Contribution wise, according to the latest interim report, the proportion is audio 44%, mobile 25%, Xbox 8%, and parts 23%. Historically there's some variation but still it's clear Fujikon is less reliant on the mobile phone sector for business. However because of its small size Fujikon does have its fate hinged on a few of its major customers (Nokia took up 1/3 of its turnover in 2006).
Fujikon is an efficiently run manufacturer with some technological content in its products to differentiate itself from its competitors. ROE has been close to or over 20% for the past 3 financial years with no use of debt. This was impressive as the past few years were bad years for manufacturing and especially exporters. Fujikon seemed to have its breakthrough in FY2006 after signing a few big accounts - Nokia, a U.S. audio brand (maybe Shure), and Microsoft. I hope this good trend will continue.
Profit was $160m in FY06 and it was about 1/3 of AAC's FY07 profit of $500m. Interim profit was up 48% so it's likely that full year profit will be higher than that of last year, 3rd year in a row. That closes the gap between Fujikon and AAC further.
Fujikon is now only trading at 5.4x FY06 p/e and has a capitalization of only 1/10 of AAC. I think there's a lot of scope for the price to catch up.
DISCLOSURE: I hold 927 and no 2018 at time of writing.
1st difference of Fujikon from AAC is it makes earphones connected to a phone, not built-in, e.g. blue tooth hand-free ear pieces that cling to your ear, and audio-grade stereo head phones that can be used for music as well. Some has radio built in and some can be used to control a phone and an ipod simultaneously. These are lower value-added products and hence have a lower margin. But I suspect there's replacement demand since some people lose their headphones, some will keep one in their cars, some buy for improved audio quality when new model becomes available. Fujikon is also a supplier to Nokia for earphones and hence its business has been prospering while Motorola is losing market share.
Fujikon also makes premium audio-grade headphones for home audio and hand-held electronics. Other than the organic growth of the market helped by popularity of mp3 music, new headphones with wireless and noise-cancelling ability creates new demand and increases unit price. Fujikon actually has a much higher margin (20% vs. 8.5%) in its audio products than mobile phone products. In absolute term audio products also contribute more to the gross profit.
Besides Fujikon makes headphones for Microsoft's Xbox 360 consoles but that's not a lot of contribution by comparison. Audio and electronic parts, mostly volume business with low margin, make up the rest of the business.
Contribution wise, according to the latest interim report, the proportion is audio 44%, mobile 25%, Xbox 8%, and parts 23%. Historically there's some variation but still it's clear Fujikon is less reliant on the mobile phone sector for business. However because of its small size Fujikon does have its fate hinged on a few of its major customers (Nokia took up 1/3 of its turnover in 2006).
Fujikon is an efficiently run manufacturer with some technological content in its products to differentiate itself from its competitors. ROE has been close to or over 20% for the past 3 financial years with no use of debt. This was impressive as the past few years were bad years for manufacturing and especially exporters. Fujikon seemed to have its breakthrough in FY2006 after signing a few big accounts - Nokia, a U.S. audio brand (maybe Shure), and Microsoft. I hope this good trend will continue.
Profit was $160m in FY06 and it was about 1/3 of AAC's FY07 profit of $500m. Interim profit was up 48% so it's likely that full year profit will be higher than that of last year, 3rd year in a row. That closes the gap between Fujikon and AAC further.
Fujikon is now only trading at 5.4x FY06 p/e and has a capitalization of only 1/10 of AAC. I think there's a lot of scope for the price to catch up.
DISCLOSURE: I hold 927 and no 2018 at time of writing.
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