AUDIO products manufacturers Tomei International will benefit from the economic recovery in the US and Britain. Its vertical integration will enhance its profit growth. Tomei manufactures electronic components and takes original equipment manufacture (OEM) assembly of consumer electronics products. The company has an impressive client list including Aiwa, Toshiba, Philips and JVC, which testifies to the high quality of the company's products. The company is now one of the world's largest manufacturers of consumer audio products such as personal stereos and mini hi-fi systems, and is continuing to gain market share in what is a highly competitive business. Currently, Tomei manufactures a large number of its own components, such as capacitors, transformers, electrical wire and injection-moulded plastic components. Sales of these items, where margins are typically twice those for OEM assembly, account for half of the operating profits. This year, Tomei plans to begin manufacturing liquid crystal displays (LCD) and electric micro-motors which, due to their complexity, command even higher margins. Operating margins for OEM assembly are typically two to three per cent. Margins for the manufacture of components, such as transformers and capacitors, are typically five to seven per cent, while operating profit margins for the manufacture of LCD displays and electric motors are between 12 and 15 per cent. Since 1990, Tomei has been investing in small, unlisted manufacturing companies, listing the companies and realising profits by selling shares. The company owns shares of listed companies worth more than $200 million. Tomei has continued to make investments and now has holdings in a range of companies which will be listed over the next few years. The next company to be listed is likely to be Quickshot, a manufacturer of joysticks, sound-cards for computers and their associated software. Tomei owns 60 per cent of this company which it acquired for just $10 million. This business is expected to make profits of $40 million in 1994. Quickshot could have a market capitalisation of $360 million, which would imply investment profits of $182 million for Tomei, although the company is likely to retain a substantial holding after listing. Quickshot is expected to be listed in the second half of 1994. Brokerage G. K. Goh Securities forecasts Tomei will have 14 per cent profit growth to $241 million in 1993, and 16 per cent to $281 million in 1994. The shares are now trading at five times 1994 earnings.
