Fischer Tech

[CY09]

Hi VB,

My "report" is not a call to take any sides. Its just an "open interview to AmFraser" demonstrating my ability to produce a report of similar quality so that they can consider hiring me as an analyst. That's all

[Big Toe]

Since I was in the OEM/ODM automotive business before, will share some thoughts.
Venture is unlikely to buy Fischer Tech. Venture itself is not getting new customers, why do they need Fischer Tech?
Unless Venture decides to go for automotive, which is a tough business, they are not set up to do automotive, Long way off.

There is little or no moat to these plastic businesses. Avoid. An upturn may see a bit of profit for its businesses but in the long run, it's not a very profitable business. Hi-P, a much more capable player, which has higher/more capabilities, is struggling.

Any person with some money can open a molding company. The tools can be easily sourced. In Malaysia, the larger plants have molding machines that are left idling. The golden days of contract manufacturing and precision plastic business is over. Most contract manufacturers earn peanuts now. I personally know one that gave up the factory and rented it out, the day they decided to close its operation was the day it turned profitable.

Venture remained profitable and sustainable due to its huge Research and Development capabilities. many companies find it good value(European and American MNCs) to engage Venture as a ODM(Original Design Manufacturer) and save on the higher R&D cost. A one stop center for them.

[yeokiwi]

There is little or no moat to these plastic businesses.

I suppose if any investor is looking for businesses with moats in Singapore, I think the list will be very very short and probably most of them that are on the list is selling at rich valuation.
It is probably better to assess a company individually than trying to lump it with industry wide prospects.

Selling curry puffs have no moat either but OCK makes lots of money for investors.
Renovation contractors have no moat either but kingsmen is doing very well.( Well, you can argue that kingsmen is a premium design house.......)

At the right price, even a Singapore textile company (Singlun and Ocean Sky) was worth investing and what could be more sunset than producing shirts, pants and shorts.

[specuvestor]

Hi Big Toe

Always great to have someone in the industry! Plastic moulders always tells us there are different capabilities from simple toys to precision gears to high quality for global brands

Why do you think Meiban delist and why Sunningdale buying First Engineering if it is sunset industry?

[dydx]

Just like for other businesses/companies, we can try to judge Fischer Tech based on 3 basic yardsticks -
(1) Can the company deliver high-quality products and services that have won the acceptance and support from good-name customers?
(2) Can the company scale up its production and delivery of its products and services in a reliable manner to meet its customers' orders/expectations?
(3) Can the company achieve the above (1) and (2) profitably in a steady manner based on good economics and prudent capital allocation?

I get 3 "Yes" when I put Fischer Tech on the above tests..

[FA+TA]

Don't forget threat from 3D printing.

[dydx]

Don't forget threat from 3D printing.

Before speculating on anything new and novel, perhaps it is useful and more important to first understand the facts about Fischer Tech's current scale and diverse range of customers…..
http://www.fischer.com.sg/aboutus.html
and niche capabilities…..
http://www.fischer.com.sg/nichecap.html

[Big Toe]

To be fair I have not looked at fischer tech's balance sheet/revenues/etc
Whatever Fischer tech's capabilities are, they are common and nothing to shout about.
The technologies existed decades ago(thin wall molding/2 shot molding(aka 2k mold)

If I am not wrong, there are a few local molders doing automotive parts, but these are not difficult parts.
They are mainly for HVAC(Heating Ventilation And Cooling) covers and Radio/navigation cover.
Margins are slightly better than consumer products but quality requirement is much higher.
Fischer tech does not stand out as something special. It is common and you can find such companies in many countries.

Onto 3-D printing, it will not replace these traditional plastic makers anytime soon. It is still cheapest to manufacture precision/non precision high quality parts using a mold. Churns out up to >100 parts within seconds. And that's how you get colgate toothpaste caps so cheaply. Good quality too.

Also it is impossible(at least for now) for 3-D printers to process engineering grades of plastic(those with special properties).
3D printers can only print 3-D models using relatively low/common grade resin materials and it is extremely slow in churning them out.

Plastics is a sunset industry, while it may not totally die off in Singapore, it' has long past its prime.
Unless the plastic makers can re-invent themselves(like Hi-P or Meiban, adding more capabilities), there is no light at the end of the tunnel.
Even for Hi-P/Meiban, they really need to move up the value chain. Fischer tech is nearer the bottom of the value chain.

[Big Toe]

Fischer tech is a commodity type business. It's customers can choose from hundreds if not thousands of companies with the same capabilities. OCK is different. It does have a moat and quite a wide one.
It is the first name I can think of when it comes to curry puff and that is so important.
When you have a product with such strong association with a company, the company must have done something right.
And products can command a premium. Try asking Fischer tech to up its prices by 3%, all customers will flee.
And yearly cost reduction is always on the cards of its customers. It is next to impossible for Fischer Tech to increase its prices.
OCK can hike its prices by 10% and customers would not even blink for a second.

Here I am speaking more on the quality of its business. Nothing on its valuation or share price.
I believe in investing in quality businesses at a fair value. Not a commodity type of business at a low price.

[toastbox]

I received an SMS from Stanchart today saying that there's a corporate action (tendor offer) that requires my action. No further details provided - that's the sucky thing of buying through custodian acct. Anyone else receive such notification?

I think it's the $0.16 offer by Harmony.What if we don't accept the offer?

I'm not very inclined to sell at this price given the BV of the company. If I read correctly, there's a clause in the offer doc that says once Harmony hits 90% ownership, they can acquire the remaining 10% by force.