November 16, 2016 - 6:20pm EST by
2016 2017
Price: 8.00 EPS 01.1 0
Shares Out. (in M): 7 P/E 7.2 0
Market Cap (in $M): 54 P/FCF 0 0
Net Debt (in $M): 6 EBIT 0 0
TEV ($): 60 TEV/EBIT 0 0

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  • Revenue Growth
  • Canada
  • Revenue Transition



Pacific Insight is an auto parts maker founded in 1989. For years it was a boring company operating in three niches. In the past couple of years demand has exploded in one of these niches (LED lighting) and this segment has now led (no pun intended) the company to grow exponentially. The stock price has increased too but (i) it has not kept pace and (ii) it recently declined hard for no reason. It currently trades at just over 7x earnings. The company has sharpened its image based on the LED segment, started writing shareholder letters in 2012 and will hopefully do some IR to get noticed now that it is close to a $100mm market cap. CEO and co-founder Stuart Ross owns 14%. The chairman owns 8%. Various other insiders own some single-digit percentage.

Business Description

PIH operates three segments: LED Lighting, Electronic Control Modules, and Wire Harnesses. The customers are higher-level suppliers or automakers. Its financial results by segment are summarized as follows (FY2016 ended in June):

  2016 2015 2014 2013 2012 2011 2010
segment revenue              
Electronic Modules 27,162 21,806 15,984 14,542 17,304 14,281 14,392
LED Lighting 93,162 53,451 33,196 25,066 9,267 8,602 5,373
Wire Harness 6,828 7,230 10,009 14,002 11,998 9,900 9,426
gross margin 23% 19% 19% 20% 20% 21% 23%
net income 9,802 2,445 1,860 (281) (482) 163 531
EBITDA 18,066 7,814 6,199 2,643 1,554 1,855 2,260



LED Lighting Products

The company develops and manufactures LED-based lighting systems and components for such systems. Historically, car lighting components were mostly supplied by makers of integrated plastic components, not lighting specialists, as the lighting aspect was easy to figure out. So the opportunity for companies like PIH was small.

Over the past few years LEDs grew popular as an alternative, as they did outside of the auto sector. Cars now feature ambient light on door handles, cup holders, even the floor. Unlike incandescent lighting, LEDs can be integrated with micro-processors, power-intelligent systems and other intelligent digital systems/functions. Light can, for example, be programmed depending on mood. LEDs also use less power, which is very useful in electric vehicles where efficiency is key.

As demand for advanced LED systems grew, plastic manufacturers fell behind. PIH decided to expand R&D during that time. As can be seen above, the LED segment has grown disproportionately since 2012. It is now the company's main focus, with further increases in R&D to create new features. PIH's advantage is the amount of intelligent features in their products.

Electronic Control Modules

This segment includes various electronic/digital modules such as steering lock, seat control, heated steering wheel, heated seats, various gauges and communication modules. The company intends to find new opportunities, including in non-traditional markets, to sell more of these. Also, they are managing this segment to enhance the competitive position of the LED segment.

Wire Harneses

Historically the wire harness segment was the most important but now the priority is harnesses used in the other two lines of business (although they still do standalone harnesses).

Recent Performance and Valuation

In FY2016, PIH's supplier status was elevated at Ford (the biggest customer) and they started prototyping advanced lighting systems for Tesla, which should now be a customer. They are also focusing on cost control programs to increase profits. Q1 2017 was announced this week and the results were in line with last year's performance. Growth going forward could be a bit bumpier but the opportunity to capture more share is clearly huge.

The company will start paying taxes this year. If we assuming an effective tax rate of 30% and apply it the TTM pre-tax income of $12.24mm, on 7.78mm shares including all options and warrants, we get a normalized TTM EPS of $1.10 for an $8 stock, plus all the growth.


Small company, four largest customers are about half of sales.




I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.


As revenues grow, earnings grow + once they're above 100mm, street will begin to pay attention and give higher multiple too.

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