ADOT investors: FYI
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Advanced Optics Electronics Strong Buy
Stockreporter.de begins coverage of Advanced Optics
Electronics, Inc. (ADOT) with a strong buy recommendation and a conservative price target of $2 per share
COMPANY OVERVIEW
Advanced Optics Electronics, Inc. (OTC BB: ADOT) is a
technology company based in Albuquerque, New Mexico. Its
primary focus is the development, production and sales of its
novel and innovative electronic flat panel displays. The
company maintains an R&D facility and manufacturing plant, and
is engaged in building large-scale flat panel displays
utilizing its patented technology. The Company was organized
as a Nevada corporation on May 22, 1996. On November7, 1996,
the Company acquired the business and patents of PLZTech, a
company involved in the development of flat panel displays.
ADOT management has concentrated its efforts in developing its
proprietary Spatial Light Modulator (SLM) flat panel display
at the Company's facilities. This advanced technology has
product application in "television quality" billboards,
medical testing equipment, military displays, computer
monitors and high definition video transmission. The SLM light
valve works the same as a water valve controlling the water
flow in a water pipe. Here the valve is controlled
electronically; the valve will respond to an electrical input
and will modulate the light passing through the valve. By
reducing the valve size (.001 inch square) and placing them in
a matrix, an SLM is formed. The major advantages of the SLM
flat panel displays which are scheduled for delivery late this
year are viewing quality, affordability, customer system
integrity, and remote change in seconds to reduce advertising
site maintenance. The primary initial product, which will be
marketed to users of Outdoor Advertising Billboards, is a
large-scale electronic flat panel display. The development of
AOE's product represents the first time that such display
technology is available for Outdoor Advertising Billboards.
The Company's product has benefits over traditional billboards
of providing dynamic, eye-catching ads and rapid change of
image to provide for multiple advertisers during a 24-hour
period. The ability to change images from a remote location
will provide advertisers with immediate access to billboard
markets. The AOE billboard display will provide an image 13' X
36' which is approximately the same size as existing
billboards. The major advantages of the ADOT flat panel
displays are better viewing quality, affordability, customer
system integrity, and remote change in seconds to reduce
advertising site maintenance. They are also inexpensive to
produce relative to alternative systems. In addition, none of
these technologies can be scaled (driven larger or smaller) as
well as can the ADOT solution.In addition to its core
business, ADOT has established a strategic position in
biomedical technology by acquiring 22% of BioModa Inc. Based
in Albuquerque, New Mexico, BioModa Inc. is an emerging
biomedical company specializing in break-through cancer
diagnostics and therapy. BioModa?s research team of prominent
cyto-pathologists have developed a patented process of
detecting the onset of lung cancer several years prior to the
actual appearance of the invasive carcinoma. BioModa is also
working on diagnostic imaging and radiopharmaceutical therapy
for other types of cancers. Recently, BioModa concluded an
agreement with the People?s Republic of China to provide a
lung cancer diagnostic turnkey package to the city of
Shanghai. Using its proprietary technology, ADOT can produce
the scanning devices necessary to the cancer detection
process.
MARKETING STRATEGY
After researching various markets including laptop computers,
HDTV flat screen industries, and Outdoor
Advertising/Billboards, management has decided to concentrate
its full efforts and attention on marketing to the Electronic
Outdoor Advertising/Billboards industry.
Management believes that, due to the Highway Beautification
Act, the number of billboards nationwide will not increase
dramatically but should remain stable. Advertisers will place
increased focus on securing and developing prime billboard
locations. The customer base for billboards is diversifying as
more advertisers are attracted to this media. Management's
market penetration analysis is based on capturing existing
sites in a stable market.
It is anticipated that the company's product and marketing
strategy will create a new segment of the outdoor advertising
market while leveraging the underlying growth and excellent
fundamentals of the existing market. Revenues will be derived
from a combination of direct sales, owned and operated
billboards, leasing, licensing, and partnerships. Experienced
professionals in finance, marketing, and research are leading
management.
Initial customer contact will be through the company by
directly communicating with potential customers. Management is
developing a marketing department to follow through on each
transaction and coordinate with manufacturing.
COMPETITIVE ADVANTAGES
ADOT will compete against established forms of electronic
display technology. Management believes that its planned
products will be superior to these established products. To
management's knowledge, no other company is currently working
on like products. Nevertheless its products and technologies
will be subject to substantial competition as the market and
technologies evolve.
CRT's and passive and active LCD's currently dominate the
electronic display market. Primarily large multi-national
companies manufacture them. However, these current industry
leaders hit very difficult technical hurdles in extending the
performance of their displays using current methods.
The Company will compete with the existing Billboard display
techniques of hand painted or printed and pasted signs.
Recently, the trend has been toward creating the art
digitally, but these images are still printed on large sheets
and pasted up in the same manner as before World War I. These
forms of billboard presentations will only be viable in low
density/low traffic areas.
Approximately 65% of billboards were booked on 12-month
contracts last year. Long term contracts could potentially
limit the access to desirable sites during the start-up
period. However, the trend is to go to shorter-term contracts
with significant turnover. According to the creativity,
flexibility and lower costs achieved through technologies
owned by Advanced Optics Electronics the company promises big
competitive advantages and an enormous growth potential.
In addition, the worldwide market for processes for the early
detection of cancer and breakthrough therapies is huge. ADOT?s
strategic partner, BioModa already has a foothold for such
activities in China, where more than 900,000 people die
annually from lung cancer. BioModa is also currently engaged
in testing projects with partners elsewhere in the world, with
a significant presence in Asia.
GROWTH INDUSTRY
Over the past ten years, there has been considerable
consolidation in Outdoor Advertising. The four leaders in the
industry currently account for approximately 48% of the
billboard market. Media companies have been buying billboard
owners in order to offer packages of TV, radio and newly
acquired outdoor space to advertisers.
For 1999, advertisers are expected to spend about $4.8
billion on out-of home media.
The outdoor advertising industry currently enjoys a mere
2% of the $190 billion advertising market and industry
experts are unanimous in their view that it should experience
a significant increase in market share.
Outdoor is one of the most stable advertising media with
its principal risk to success and expansion basically
limited to economic recession. Since 1970 it has experienced
only one year of revenue decline(1992) and has seen
revenue grow at a compound rate of 8% per year.
In 1997, billboards accounted for 57% of outdoor ad
revenues and that proportion is growing dramatically.
EARNINGS PROJECTIONS
The following projections estimated by the management are
based on conservatively projected revenues. So we consider
these figures to be very realistic and achievable:
Revenues Projection:
Year 2000: $11,085,000
Year 2001: $39,229,560
Year 2002: $109,256,840
Earnings Projection:
Year 2000: $2,611,000
Year 2001: $12,150,000
Year 2002: $34,700,000
ADOT is a publicly traded company with total shares issued and
outstanding of approximately 34,188,500 million which leads to
the following earnings projection per share:
Earnings Projection per Share:
Year 2000: $0.08
Year 2001: $0.35
Year 2002: $1.01
The following share price targets are based on a conservative
25 PER for an emerging high tech company:
Share Price Target:
Year 2000: $2.0
Year 2001: $8.9
Year 2002: $25.4
EVALUATION AND OUTLOOK
Following these projections and calculations we conservatively
expect $0.08 earnings per share for the year 2000. Therefore
we set our share price target to $2 at a conservatively
estimated PER of 25 which in case of this tremendous growth
potential seems to be more than justified. Hence, the share is
only valued at a current price of $0.25 and is therefore
drastically undervalued.
ADOT has proprietary technology for a product for which there
is significant demand in a rapidly growing market. Prospective
customers have already approached ADOT expressing intent to
acquire its flat panel outdoor displays. The Company?s
proprietary technology has applicability to other products
with considerable growth potential. It has a substantial
equity position in a biomedical firm, also with patented
technology in a high profile area, with which it can develop
synergy.
So even drastically more than $0.08 earnings per share already
for the year 2000 seem possible to us, especially as we can
reckon with much more success for ADOT than we very
conservatively assumed. However, revenues and earnings
projections are reasonable and represent a very successful
business venture.
Furthermore in view of the amazing growth potential of ADOT
and the tremendous earnings per share estimates (e.g. $1.11
for the year 2002) even much higher share price dimensions
seem to be clearly justified. The Company?s audited balance
sheet is "clean". At merely $67,000, long term debt is less
than 6% of total net worth. The fact that it is a fully
reporting organization compliant with SEC requirements shields
the investor from risk exposures inherent in most emerging,
unlisted companies.
Assuming net margin projections are reasonably valid, each
flat panel display unit sold could generate about 1.5 cents in
EPS. At a conservative 25 PER for an emerging high tech
company, one could impute an incremental value of 30-35 cents
per share for each unit ADOT sells.
Given the high sales growth projected for ADOT we believe a 25
X PE multiple on forecast normalized earnings is extremely
conservative. Therefore, we would expect the Company?s common
stock valuation to be in the neighborhood of $4.00 by
mid-2000.
We would like to also mention an additional and very important
aspect: The management of the Company is currently evaluating
the option of applying for a listing at NASDAQ Small Caps. So
in particular, this forthcoming listing of ADOT with regard to
the renowned NASDAQ will massively inspire the share price.
Therefore we believe especially this fact of taking the stock
public to a major stock exchange will bring a massive thrust
of both new retail and new institutional investors driving the
share price into dimensions the stock really deserves.
Furthermore ADOT is going to apply for listing also at a major
European stock exchange to increase the international exposure
and to establish new investor relations in Europe. These two
potential listings will open the door for new major
institutional investments by e.g. national funds and
investment bankers and will give the share price massive new
drive. For that reason potential investors have got only now
the extremely unique and promising opportunity to invest in
the shares of ADOT on a more than advantageous share price
level of $0.25.
According to these of ADOT we are strongly convinced that the
ADOT share is drastically undervalued at a current price of
$0.25 offering a short and mid term potential of more than
700%. For this reason we believe that the ADOT share currently
is a one of the most exciting and most promising investment
opportunities for both retail and institutional investors and
that this share is going to be one of the best performing high
tech shares in the next months. |
