Focused Photonics Inc:Sound industry and clear strategies –an instrument giant is emerging

Analytical instrument trip reaffirmed our positive view on FPI.

    Policy imperatives to drive EMS upcycle; FPI is well positioned We recently conducted a field trip to China, visiting major analytical instrument players and several of FPI’s major subsidiaries. We walked away with stronger confidence in Focused Photonics Inc. (FPI). Organic growth remains robust across major segments, including environmental monitoring systems (EMS), laboratory equipment and water conservancy. We were particularly impressed by FPI’s strategic vision of becoming an analytical instrument leader and believe its well established platform could facilitate horizontal expansion, which has proved to be a winning strategy for this industry globally.

    Policy imperatives to drive EMS upcycle; FPI is well positioned .

    The expanding environmental monitoring network, rising coverage on monitored pollutants and stricter emission requirements are the three structural drivers for EMS that we believe should play out during the 13th FYP period. Industry participants are, in general, bullish on the organic growth outlook, expecting 25-30% growth ahead. The likely change in the government’s procurement behaviour (i.e., centralised procurement and adoption of PPP model) should accelerate industry consolidation, in favour of leading players with a wide range of product/solution offerings and strong balance sheets. We note FPI’s recent winning of two PPP projects (Huangshan and Guangxi) demonstrates its competitiveness.

    Robust growth outlook at subsidiary level; a proven acquirer and integrator.

    We visited FPI’s three subsidiaries, Jitian (laboratory instruments), Anpel (laboratory consumables) and Dongshen (water conservancy and water intelligent systems). They are local leaders in their respective niche segments and were previously acquired by FPI. Our takeaways are twofold: 1) on growth, all three companies are aiming to grow their businesses by 20-30%; 2) they expect synergies under FPI’s platform through its strong distribution channels and established customer relationships, which are among the key reasons they chose to join the “FPI family”. We believe FPI’s leading market position could facilitate its future horizontal expansion (via acquisitions).