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Fingerprint Cards

Fundamental View

Fingerprint Cards (FPC) develops and sells biometric solutions as it is transitioning from selling just components like fingerprint sensors to being a provider of biometric systems. It has global reach and multiple geographical locations as the world’s number one fingerprint sensor supplier (55-60 % market share excl. Apple in 2016) and one of Europe’s largest fabless semiconductor companies. The fingerprint sensors are at the moment sold to distributors or module manufacturers that sells the fingerprint modules to primarily smartphone OEMs but coming verticals will include e.g. PCs, tablets, automotive and IoT. Besides selling the hardware FPC also provides various software solutions across the value chain. FPC attribute its success to e.g. proven volume capacity (shipping 1 million sensors a day at the end of 2016), low power consumption and cost effieient production costs.


Last updated: 2017-04-25 Source: Redeye

Coming soon. For now see our initiating coverage report http://beta.redeye.se/company/fingerprint-cards/481400/fingerprint-cards-china-your-hand 

Last updated: 2017-05-03 Source: Redeye

Coming soon. For now see our initiating coverage report http://beta.redeye.se/company/fingerprint-cards/481400/fingerprint-cards-china-your-hand 

Last updated: 2017-05-03 Source: Redeye

  • Critics have an oversimplified view of increased competition as the sole problem
  • Major stock market distrust from missed targets, insider crime accusations etc.
  • Earnings beat in Q4’17 could make the stock move
  • Attractive margin of safety

Critics have an oversimplified view of increased competition as the sole problem

Our interpretation of the severe drop in shares of FPC is that the general view out there, in the eyes of the critics, is an image of increasing competition causing the decline. Consequently, it is argued that dual sourcing will put fierce pressure on the gross margins. We are not dismissing this valid counter-argument but we believe the picture is more complex than that, involving some important, short term issues, whose impact are not fully understood by the stock market. FPC failed to see and prepare for the higher sell-in than sell-through, which caused a bull whip effect and excess inventory build-up throughout the whole value chain. This part of the story is well known but making matters worse, shortage of displays (LCD as well as AMOLED due to lower capacity and yields respectively) has led to unfavourable market share loss among FPC customers with high FPS penetration. The winners and the fastest growers have instead been the tier 2 and tier 3 smartphone manufacturers not relying on e.g. Samsung’s AMOLED displays, whereas FPC instead has focused on a handful module manufacturers working with tier-1 players, leaving some low hanging fruit for e.g. Goodix. Our conclusion is that these factors are all surmountable and short-term and if we are correct in this sense the share price decline is likely a classic recency bias overreaction.  

Major stock market distrust from missed targets, insider crime accusations etc.

We are not overly surprised by the negative trend for the share price given all the negative news such as profit warnings, insider crime accusations, fines from NASDAQ Stockholm Disciplinary Board due to shortcomings in the information disclosure and so on and so on. All these factors add up to a major distrust towards FPC, which should not go away anytime soon. As investors do not trust FPC they also tend to ignore e.g. the market leadership and the advantageous position with access to capacity as well as the strategic transition moving from selling semiconductor components to providing biometric solutions (e.g. own algorithm, Delta ID, SoC etc.). We also feel that the mistrust for FPC make investors neglect FPC’s solid position in the new verticals that will contribute to a fast total market growth. The coming new segments may be way delayed but it does not mean that FPC does not have the partnerships necessary etc.

Earnings beat in H2’17 will make the stock move

All trust has vanished. Forget about the number of launched smartphone models, bid rumours, Samsung orders, stock repurchases, Delta ID or other value-adding acquisitions, etcetera. Figures above consensus expectations is what is required to break the downward spiral for the share price. We need one or more likely multiple, strong “one finger salute” reports that beat earnings consensus. We believe consensus will be surprised on the upside in Q4’17. We expect EBIT of SEK 1 332 million in H2 compared to the Bloomberg consensus average of SEK 1 149.

Attractive margin of safety

Our base case of SEK 58 per share implies an attractive margin of safety in relation to our reasonably pessimistic scenario of SEK 22.

Last updated: 2017-05-16 Source: Redeye