FSIN is in the business of producing bimetallic wire products, mainly copper-clad aluminum and copper-clad steel products. Those can be used as a substitute for solid copper conductors in electrical or physical attributes. Currently, the company sold to 590 customers in 34 countries around the world, with the main concentration China, taking 79% of total sales revenue for the fiscal year of 2010, then North America accounted for 15%, Europe was for 3% and the rest was 3%. The top five customers represented 14%, 15% and 18% of total revenue in the last three years of 2010, 2009 and 2008. In terms of supplies, the raw materials consisted of copper, aluminum and steel which represented 63%, 32% and 3% of total raw material purchases.
In the financial statements, FSIN was the cash generator, keep having operating cash flow and, except in the year of 2008, where FSIN made large advance to suppliers and increase the level of account receivable substantially, pushing the CFO to zero. In addition, FSIN got quite liquid and conservative balance sheet, whereas it got nearly 40% of total asset in cash, with the amount of $164 million, $6 million both short and long-term debt. Adjusting that with the market capitalization of $285 million, the enterprise value was staying at $127 million. The offer of taking the company private at $9.5 per share, prices the whole company at nearly $205 million enterprise value.
The current offering price values FSIN at P/E 8.5x, P/CF 3x and P/B 0.5x if we take the enterprise value number. For me, it seemed to be quite undervalued price and it was the right move, beneficial for Mr Li Fu and Abax Capital to take the company private. Additionally, GMT Capital, the 10% owner of the company, has consistently bought nearly $4 million worth of shares in 2011.
So at the price of $7.5, it was 14% cheaper than the insiders' significant buy, and it was nearly 27% cheaper than the offering price to take the company private. That signals the buying opportunities right here. However, by the time of writing this article, the market might open much higher than $7.5. Then an arbitrage opportunity might present itself if the spread is high enough. The initial offer a year ago at $11.5 didn’t go through, so personally I think the lower price of $9.5 has little probability of closing either.
This is the subjective viewpoint of the author, and it is not the recommendation to buy, hold or sell the stocks mentioned in this analysis. Anyone who wishes to buy, hold or sell the stocks has to do his/her own analysis at his/her own risk.