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Fabrinet: Optical Communications Industry Underpriced Due To Unjustified Pessimistic Outlook

May 07, 2018 9:47 AM ETFabrinet (FN)3 Comments
David Blanco profile picture
David Blanco


  • The optical communications industry continues to increase in size and demand for external manufacturing is becoming more common.
  • The market maintains its pessimistic outlook of the optical communications industry due to China’s 2017 anti-dumping policies, and so the industry is currently undervalued.
  • PCR’s new five-year plan will boost its domestic market growth, which will boost Fabrinet’s production within China and Thailand.

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PCR’s Policies

Fabrinet (NYSE:NYSE:FN) and the optical communications industry continue to be undervalued due to a pessimistic outlook that will eventually correct itself. On August 18, 2017, the optical communications industry took a hit due to China’s Ministry of Commerce. After conducting a yearlong expiry review on optical imports, China imposed tariffs and restrictions on imports from the US and Japan in order to promote its domestic production.

These anti-dumping measures made Fabrinet’s stock plummet from $44.01 to $36.03 in August alone due to additional costs and reduced revenue Fabrinet would be expected to suffer due to these tariffs. The Chinese policy affected Fabrinet’s long-term expected revenue, with the stock’s price continuing to drop for the following months. Not only Fabrinet, but the entire industry took a significant hit due to this, since China represents the fastest-growing optical communications market.

Currently, China’s new five-year plan aims to create a domestic optical components industry, which will drastically increase the domestic demand for said components. PCR's policies intend to boost Chinese optics companies in order for them to reach 30% of the global market share by 2022. Demand for optical components will continue to rise as China expands its efforts to erect 5G wireless and data centers. While China will continue to promote the growth of domestic companies in this industry, it is likely that the domestic supply will not be able to sustain the growth in demand.

The industry as a whole will experience a rebound as a race to export optical components

This article was written by

David Blanco profile picture
Private Investor

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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