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Key Tronic Corp. Message Board

  • commandor58 commandor58 Jan 22, 2013 6:47 PM Flag

    Just a point!

    KTCC gets 80% of revenues from their Mexican operations-you really could identify them as a Mexican company with some US and China operations. Now if you look at the Mexican stock market, it has been making all-time highs for months. If KTCC were listed on the Mexican exchange, it would be 50% higher-perhaps more. On the other hand, with HQ in the US, investors get the best of both worlds with the low cost mfging operations and the very stringent SEC and US accounting standards. Both are reasons why, sometime in the next 12-18 months, KTCC will either get to $20 on their own earnings and sales results or get bought out with an offer they can't refuse. It wouldn't surprise me that an offer may come from a Mexican company and be upped by one of the large US based US EMS companies.

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    • Hey Commandor. Devil's advocate......what do you get if you buy a Mexican based EMS company? Mexican facilities, their clients, and their management is what I see.

      Regarding clients....well KTCC seems pretty well rounded. That's good for KTCC, but I dont think it makes them a particularly attractive buyout target. If they had a major specialty that a larger firm wants to healthcare, or defense, or whatever.....that might make them very attractive to someone.....but it seems to me the buyer would probably be getting more of the same stuff they already have, and can bid for.

      Re management, It seems to me that KTCC's management is as good as it gets. But I dont think a large company necessarily wants new strong management. And if they did, they could just try and hire him without the rest of the company making it super expensive.

      Re Mexico, well those facilities certainly make KTCC attractive. But if I'm a larger player, why not just buy a huge facility in northern Mexico.....I think Juarez and Reynosa may be more expensive, but not that much more than a few years back. Plus they could get everything brand new and just the way they want. Or, buy a cheaper crappier performing small ems company with significant presence in SGMA, where you may not have to pay a premium for management and prior success.

      Anyway, just looking at the flip side...I am long KTCC. I certainly agree that KTCC could get bought out, just not sure if it has a far higher chance than whatever the norm is.


      • 3 Replies to fabulouspoodle
      • Do you buy prepackaged meat? You shouldn't. You should kill and butcher it yourself. It will save you a TON of money. Same with vehicles. Don't buy them, design and build them yourself. it's WAY cheaper to do that.

      • What a potential buyer would buy are physical assets that if purchased today would probably cost 2X+ what KTCC has as historical cost. KTCC moved into Mexico when Mexico was in the daily headlines for their crime problems, so cost basis (book value) way understates today's replacement or duplication value. Then a buyer would get KTCC's customer list and goodwill-also very hard to build from scratch. HELE's announcement that they are building a new warehouse in Mississippi tells you they expect to bring in more product out of Mexico. Texas's boom, relative to the rest of the country, leverages off of its proximity to Mexico.

        Bottom line, what KTCC has built would take years and more than 2X the money to duplicate and EMS clients tend to be sticky. Given FLEX comments about NA mfging-really about Mexico-KTCC is in great shape.

      • Yet another great poodle post. What a broker you would have made in the day.

7.35Sep 27 3:59 PMEDT