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PPTV VISION, INC.
10/14/97
COMPANY OVERVIEW: THE INSPECTOR GENERAL
Over the past several decades, automation has taken over nearly every aspect of manufacturing - except for parts inspection. Many manufacturers still rely on the time
consuming and inaccurate technique of off-line sample inspecting.
Machine vision inspection systems, however, fully automate inspection while achieving 100% verification rates, enabling companies to virtually eliminate shipments that include defective products. This helps manufacturers save time, face, and money.
Headquartered in Eden Prairie, Minn., PPTV Vision (Nasdaq: PPTV)designs, manufactures, markets, and integrates machine vision inspection systems that combine proprietary software, computer hardware, cameras, and lighting methods capable of
inspecting electronic and mechanical assembly, verify printed
characters, detect surface flaws, and inspect packaging. PPTV's primary target markets include manufacturers of electronics, pharmaceuticals, medical products, cars and car parts, consumer products, and plastics worldwide.
CURRENT STATUS: AN UPTURN IN THE WORKS
Improved Sales Seen: For the third quarter of FY97, PPTV finally saw sales reverse their downward trend. The first two quarters of the fiscal year presented a challenge as a slowdown in the electronics industry cut into demand for vision products.
Sales overall in Europe slowed, too. Consequently, PPTV suffered a
first-half sales slump. Since then, however, orders from both the electronics segment (in both the U.S.
and Europe) and in Europe in general have picked up, driving PPTV's
revenues to a year-on-year 4% gain. Such a pace isn't satisfactory, nor what management is shooting for, but it's concrete evidence that revenues are on the rebound.
Higher Cost Structure Hurts EPS: Over the past few quarters, PPTV has beefed up both its application of new product launches. Until the products are out, the additional people will cause PPTV's costs to run ahead of revenues.
That dynamic caused operating expenses to take a much bigger chunk out of revenues than they did a year ago. PPTV has also kept up spending on R&D as it develops next-generation products. Consequently, the third quarter operating margin fell to 5%, down from 18.5% a year ago. We expect that these costs will rise at a much slower pace
going forward, allowing PPTV to become more profitable as sales grow. Thanks to a big kick from interest income, PPTV earned $0.05 per share, compared with $0.16 in 3Q96.
New Product: In mid September, PPTV announced its Passport DSL(Digital Serial Link) and Scout DSL, the machine-vision industry's first fully digital systems and network. Compared to the conventional analog systems, DSL is noise free, allowing
faster and farther data transmissions. Networked, DSL offers
expandability four times that of analog without adding costly central processors. In conjunction with the new DSL
lines, PPTV has created its own digital camera, which is reportedly the fastest digital serial camera in the vision industry.
FUTURE PROSPECTS: NEW CAPABILITIES EXPAND OPPORTUNITY
Room to Grow: Based on the prospects of machine-vision technology and PPTV's solid vision products, the Company's core business has good prospects going forward. The technology allows manufacturers to save money while increasing product quality. With little current penetration into manufacturing plants worldwide, the machine-vision market is expected to expand about 15% annually for the next several years, giving companies like PPTV an excellent
opportunity for organic growth.
Competitive Advantages: In general, PPTV's strategy looks to maximize internal growth while keeping an eye open for the right acquisition targets. As a leader in speed
and ease of use, PPTV boasts attractive competitive advantages that
should help it maintain leadership in its niches.
New Doors to Open: PPTV has started to better address the vision needs of the semiconductor industry by adding new capabilities to its vision system. PPTV's speed advantage should help the Company penetrate this market. Longer term (about a year out), PPTV should also be ready to ship the first products from its new
Microelectronics Products Group whose mission is to develop high-speed, application-specific, machine-vision systems for the semiconductor and electronics industries. This market is big and
growing - and competitive. With miniaturization the order of the day,
inspection needs require ever faster and specific vision capabilities. PPTV has licensed leading 3-D vision technology to leap its biggest technological hurdle. With an expected price tag of $300,000 to $500,000 each, these new products should add nicely to
PPTV's top line as soon as the first unit ships. The potential demand is such that this new business could outgrow PPTV's current core segments within five or six years.
INVESTMENT CONCLUSION: LONGER TERM
No doubt, PPTV's long-term prospects have grown increasingly bright over the
past few months with its new digital products and its entree into the
semiconductor market. Coupled with improvements in the core business due to stronger orders from the
bread and butter electronics segment, and its cash laden balance sheet
(important for financing of financing of the new projects), PPTV deserves an upgrade to a "B". Because the Microelectronics Group is new and products are still several quarters out, we've decided not to add its potential FY98 year-end sales to our
projections. Valuations from an earnings multiple point of view (36x FY98 EPS) look pretty lush, but the Company boasts nearly $4 per share in cash, no long-term debt, and a $5
book value. |
