I still disagree with the blame toward management.
If you read the last quarterly report, and the last conference call notes, the trouble with the peso and the slow start-up of new customer programs were evident before this report. The loss of the customer to Asia after quite a number of years as an Elamex customer was a surprise, and I am certain had nothing much to do with Elamex performance. I'm beginning to see unmistakeable trends toward higher margins in this business, and I think that is because customers are willing to pay up for reduced time to market. Given the short life of most electronic items these days, it is critical to move it to market as quickly as possible. Also these electronic goodies no longer have the time to sit on a "slow boat from China" or in Elamex's case, a slow boat to Asia.
Originally I thought the Asian countries, especially China, would come to dominate electronic manufacturing. I now believe that manufacturing in low labor cost countries around the world will be necessary to keep the time to market short and to react quickly to changing market conditions. I'm guessing China and Malaysia in Asia, Mexico and Brazil in the Americas, Hungary in Eastern Europe, and India, will be where we see most new ECM facilities built. This will cover the largest markets in the world well.
This is good news for Elamex. If they indeed pull off two of the three possible acquisitions they mentioned, this will place them in a strong position in one of the key growth markets. Also if they have landed Boeing as a customer, then this could drive sales and earnings higher as well; remember Boeing is suffering a shortage of production capacity.
I forsee much faster growth over the next 4 quarters. The company could start to shake the stodgy image that has resulted in such a low PE. Of course, they must close and execute these deals and programs. There is still a lot of uncertainty right now. But I'm patient. I'm disappointed I didn't cut back on my investment as the stock ran up to 12-13 again, like it did last winter; I should have known a tough Q report was coming and anticipated the market response. But looking at 12-18 months, I think the future earnings will be growing much faster than most expect.
Lastly, the Mexican economy can't continue to see 20% labor inflation and only have the peso drop 5-7% a year. I think the peso will weaken, and probably has some catching up to do, given the recent trend is unsustainable. This will go a long way toward fixing the lower margins experienced recently.
I've bought some more shares recently, and will add more from time to time.
Paul |
