Harman International Industries Inc. (HAR) has opened a new manufacturing facility in the Dandong region in China. The launch of the new facility highlights the company’s additional $100 million investment plan to strengthen manufacturing and research capabilities in China. Two facilities will be accommodated in the 460,000-square foot space that is being developed.
The new unit will be used for the development of electronic components and audio systems for Harman’s automotive customers in both western and Asian countries.
Harman’s decision to increase investment in China makes sense since a large chunk of global auto production has now shifted to the country. Further, demand for audio systems from the Chinese automakers is also on the rise. Premium automakers, such as Geely Motors, BYD and Dongfeng Passenger Vehicle are already using Harman’s superior sound systems.
In China, apart from the Dandong region, Harman has manufacturing facilities and R&D centers in the cities of Shanghai, Suzhou and Shenzhen. China is also seeing rapid increase in infrastructure projects such as airports and rail stations, hotels, cinemas, entertainment and sporting complexes, performing arts centers, and mega-projects such as the upcoming Shanghai Disney theme park. Harman is playing a major role in these development activities with its premium audio systems for the professional and consumer sectors.
Given increasing adoption rates in the emerging markets of Brazil, Russia, India and China, Harman expects to outperform the overall automotive sector going forward. Harman is doubling its manufacturing capacity in Hungary, China and Mexico, which will help the company address the growing demand for Automotive and Professional products.
Harman boasts a solid product pipeline that is supported by more than 3500 patents, and the company intends to roll out new infotainment products in order to further drive sales.
In the recently concluded quarter, Harman’s results were stellar, driven by double-digit revenue growth in the Infotainment and Lifestyle divisions. The company expects to deliver impressive margins for the next two years on the back of robust demand for the infotainment business.
However, Harman continues to face tough competition from Bose Corp., Boston Acoustics Inc., Pioneer Corp., Yamaha Corp., Rockford Corp., Panasonic Corp. (PC) and Sony Corp. (SNE), which may hurt its profitability going forward.
We maintain our Neutral recommendation on a long-term basis (6-12 months). Currently, Harman has a Zacks #1 Rank, which implies a ‘Strong Buy’ rating on a short-term basis (1-3 months).
