Individual Investor Rates AFLX a buy up to $30.00, taken from the II web page:
ADFLEX SOLUTIONS INC is a "one-stop shop" for customers of flexible circuits.
Adflex Has Strong Q1
Results; Buy (4/24)
On April 23, Adflex Solutions (NASDAQ:
AFLX) announced first quarter earnings of
$0.30 per share. Earnings exceeded
consensus estimates by $0.01 per share and
triple the amount in the year-ago quarter.
AFLX shares reacted positively and were up
more than a point to $20.50.
AFLX sales in the first quarter, for the period ended March, were $50
million, up from $48.2 million in the year-ago quarter. Gross margin rose to 21%, up from 15.4% last year due to lower costs at the Thailand facility. The assembly business has gross margins of about 25% and fabrication is about 15%, according to Rolando Esteverena, Adflex's president and CEO. The bottom line improved substantially. Due to improved gross margin, earnings rose 200% from the year-ago period.
In the first quarter, AFLX's revenue mix was: 34% from the hard disk drive market (HDD); 28% from communications; 21% from storage and tapes; six % from notebook and computers; and the rest from consumer products. Operating profit soared 137% as AFLX continues to shift its product mix toward higher margin items. The net profit margin in the first quarter was 5.3% compared to just 1.8% a year ago.
AFLX continues to diversify its business and reduce its concentration on HDD markets. The revenue derived from this segment decreased to 34% of total revenues, down from 38% in the previous quarter and down from
52% in the first quarter of 1997. AFLX continue to concentrate on rapidly growing areas like computers, communications, and consumer markets, which is a big positive for the company, considering the volatile HDD market. Revenues from the communication sector grew by 21% and by 29% for consumer products.
IBM (NYSE: IBM) became AFLX's largest customer, accounting for 18% of sales. Nokia (NYSE: NOK.A) comprised about 15% of sales, Seagate (NYSE: SEG) pitched in 13% and Motorola (NYSE: MOT)accounted for 12%. Some new customers were added, namely Qualcom (NASDAQ: QCOM) and Ericsson (NASDAQ: ERICY), in the communications markets. As many customers are becoming increasingly interested in the "one-stop-shop" concept, more customers will turn to AFLX for combined assembly and fabrication (which currently account for about one third of its business), according to Esteverena.
Even though the backlog was down from the last year, it still remains strong at $41.1 million. AFLX's inventories were down to $17.8 million, from $19.3 million last year, due to the company's focus on reducing its inventories cycle. Days sales outstanding declined to 50 days from 52 days.
We rate AFLX a buy due to its continued operating improvement, diversification strategy and cheap valuation. Shares trade at about 13 times the 1998 consensus estimates of $1.50 per share and are inexpensive compared to the company's long-term earnings growth rate of more than 30%. AFLX is just too cheap! Aggressive investors should add to their positions up to $30.
Updated 4/24/98 with AFLX at $21.00 per share.
Recommended 11/18/97 at $20.38.
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