Something’s Happening at Fosrich
Listed company Fosrich Company Limited is on target for its most successful First Quarter since listing on the Jamaica Stock Exchange in 2017.
The company is in the business of distributing lighting, electrical and solar energy products for global brands such as Huawei, Seimens and General Electric (GE). More recently Fosrich has ventured into new business lines including the manufacturing of PVC Pipes and the repairing of transformers for the Jamaica Public Service through its Blue Emerald subsidiary.
The new business lines set the stage for Fosrich’s plans to diversify its revenue streams having signed a four (4) year renewable contract with JPS which will see the company repair more than a thousand transformers per year. A deeper look into this new venture could give some telling insights for what’s to come for Fosrich’s First Quarter Results. JPS estimates the cost to repair a single transformer to be JMD 85,000 in 2008 or an estimated JMD 116,000 in 2021 (using average inflation rate 2008–2021). Therefore Fosrich is projected to add an estimated $116m in revenue assuming they repair at least a thousand transformers throughout 2021. Managing Director, Cecile Foster, has stated that the new venture should be at full production capacity starting January 2, 2021. Fosrich has chosen to use subsidiary Blue Emerald to operate the transformer repair business at the Hayes Free Zone Complex and is looking to certify the company as a “Free Zone Entity” effectively cutting its tax rate from 25% to 12%.
Fosrich has also become the sole manufacturer of PVC pipes in Jamaica and has experienced a 240% — 300% spike in demand since the start of the pandemic which isn’t surprising given the heavy use of PVC pipes in the construction and infrastructural projects across the Island. This is also complemented by the supply-side challenges that local developers face from the pandemic, therefore Fosrich is in a good position to gain market share from importers of PVC pipes.
Fosrich will also capitalize on its expansive distribution network across the Island, as the company should begin to utilize its new 30,000 square ft warehouse location on 76 Molynes Road Kingston. The new space will double the company’s existing warehouse capacity by 15,000 square ft to help meet the demand for its PVC pipes and to house its new Super Store. Fosrich also plans to lease additional space to BPOs, Banks or food stores possibly adding rental income to the company’s top line.
The existing network will also help in the distribution of PVC pipes with 60,000 square ft of the Marley Avenue Facility air marked for bulk warehousing and the remaining Mandeville and Montego Bay locations being used as regional warehouses. In addition to the Hayes Free Zone Facility which will house the manufacturing of PVC pipes.
Assuming Fosrich continues its strong performance from Q4 2020 into Q1 2021 with a17% growth in revenue from the increased sales in PVC Pipes and transformer repairs at full capacity the company could see an increase it’s Gross Profit Margin from the SPLY and is expected to beat Q1 2020 Net Profit by 504%. This translates to $29 million Q1 2021 est vs $4 million Q1 2020. The company currently trades at a price to earnings ratio (PE) of 21.6x compared to the market average of 18.47x. With a stellar Q1, the full-year projected EPS of $0.34 vs 2020 act EPS of $0.25, implies a current PE of 15x and forward price of $7.34 (+36%).
Edit:
Barita Unit Trust Captial Growth Fund has purchased 6.2m units over the last six months. Read from this what you will but Fosrich is definitely one to watch.
