This company, which primarily designs and manufactures electronic learning products for infant, toddlers, and pre-schoolers (about 45% of total revenue), telecom terminal products such as cordless phones (25%), and contract manufacturing service products (30%), has been grouped into electronic learning products sector in toys and gaming industry.
It seems that the demand for electronic learning products (kids) provided by companies in this sector has been stable and increasing in the past several years. The growth seems to have been slowing down in matured markets such as North America (generate 0.6% growth in revenue of 2017). However, the growth has been very fast in Asia area (present average annual 40-60% growth).
The typical gross margin is about 33% and with a SG&A as percentage of sales of 19% the operating margin is about 11% in 2018. The typical enterprise cash flow/EBI ratio is 20. The average annual increase in EBI/share is 14% in the past two years.
It seems that the demand for electronic learning products of this company has been stable and gradually growing in North America and Europe and quickly growing in Asia in the past several years. Demand for its telecom products has been declining.
The fiscal 2018 compared with the 2017 (ended March 31 2018)
Net revenue increased 2.4% attributable to increase of 2.4% in North America, increase of 2.2% in Europe, and increase of 33% in Asia and pacific.
Revenue from learning electronic products increased by about 0.6% and 1.6% in North America and Europe and by about 36% in Asia.
Fiscal 2017 compared with fiscal 2016
Net revenue increased 12% attributable largely to acquisition.
Fiscal 2016 compared with fiscal 2015
Net revenue decreased 1.2% attributable to decrease of 2.4% in North America, decrease of 2% in Europe, and increase of 9.7% in Asia and pacific.
Revenue from learning electronic products increased by about 4.8% in North America, decreased by about 10% in Europe, and increased by about 58% in Asia.
Its gross margin was up from 31% to 33% in 2018 primarily due higher margin of acquired business offset by increased costs. Due to slightly increase in its SG&A as percentage of sales (up to 19%), we see a flat operating margin 0f 11% However, the average EBI/share (after consolidation) increased in the past three years.
Stock performance
This company is having an enterprise price/cash flow ratio of 20. We think that its stock is being relatively undervalued compared with its peers JAKKS PACIFIC, INC and MATTEL, INC.
