Thinking Electronic (TE) is a global market leader for thermistors and varistors, listed in Taiwan. TE’s products are used in power supply and most electrical devices to help regulate temperature, voltage and current. A large market share of 40% has allowed the company to develop cost advantages. The products are tailor-made and represent a low cost - yet crucial - item for their customers. Customers sign long term contracts with trusted suppliers whom they believe can meet their requirements in terms of R&D, timing, quality, cost etc. and can guarantee the supply, typically for a period of 10 years. These attractive characteristics resulted in a strong historical financial performance with revenue growth of 5% p.a., EPS CAGR of 12% and high operating margins & ROE over the past 5 years of respectively 21% and 18%.
The share price has declined 17% from its peak early this year because of concerns over COVID. Although there will be a short-term impact on TE’s financial performance we believe the longer-term outlook remains positive. At a trailing P/E of 9.5x (7.6x net of excess cash), we believe our downside is protected and the probability of generating an attractive return is high.
TE is a manufacturer of a broad range of circuit protection solutions that guarantee user safety for electrical devices. The slide below provides an overview of product categories and applications.