Phuket Business: Replicating your life savings

PHUKET: The new hot sector for technology investors is in the rapidly growing 3D printer business. 3D printing is the process of making a three-dimensional solid object of virtually any shape from a digital model. 3D printers use a 3D CAD (Computer Aided Design) file to create objects using a sequential layering process. This technology is used in jewelry; footwear; industrial design; architecture; engineering and construction, automotive, aerospace, the dental and medical industries; education; civil engineering and many other fields.

My first introduction to 3D printing came in 1997, working as a mechanical engineer, while printing out of plastic the first prosthetic limb for a below-the-knee amputee. The purpose was to manufacture a cost-effective prosthetic limb from a digital scan of the patients remaining leg. At the time it was cutting edge technology but new advances have come a long way since 1997. Last month, surgeons for the first time used 3D printing to completely replace damaged bone in a patient needing a skull replacement. 75% of the patient’s skull was successfully replaced with 3D-printed material. The uses of this technology are endless.

The Process

The process begins with taking virtual blueprints from CAD and “slicing” them into digital cross-sections for the machine to use as a guideline for printing. Material is then layered until a 3D model has been “printed”. These layers of material are fused together to create the final shape. What this allows for is to create an object of any shape or geometric feature. This is known as rapid prototyping. There are several rapid prototyping techniques and companies using this technology, but they all use the basic five step process.

1) Create a CAD model of the design; 2) Convert the CAD model to STL format; 3) Slice the STL file into thin cross-sectional layers; 4) Construct the model one layer atop another; 5) Clean and complete the model

Dassault Systemes SA (DASTY)

Dassault Systemes is the largest company in the sector with a market cap of $14.32bn. The stock is currently trading at $115.77, just shy of its 52-week high of $117.90. Dassault is in the strongest position of the companies with 3D printing technology. The company has a forward P/E of 20.90 with a strong return on equity of 15.18% and operating margins of 24.70%. The company is sitting on $1.71bn in cash. I do like the stock, but it has had a good run off its 52-week low of $84.17. I advise investors to wait for a pullback.

The ExOne Company (XONE)

The ExOne Company is a new Initial Public Offering (IPO) in the 3D printing sector. The company came public just last month and jumped over 47% on its first day of trading from its offering price of $18. They raised $95 million from their IPO. The stock is currently trading at $30.74 and has a market cap of $393 million.

ExOne’s 3D printer is unique in that the customer can print in the material that they desire. Their competitors require that the customer print in plastic. Currently Ford, Boeing and Caterpillar are using ExOne’s printers. The company has a backlog of orders for their printers and I look for growth to continue.

Even though the stock is much higher than its recent IPO price of $18, this is one my favorite stocks in the sector. It has the lowest market cap compared to the other companies in the 3D printer business and I think it has the most room for growth and upside potential. ExOne is focusing solely on large industrial users with significant resources rather than consumers. The company will grow revenues not only from new orders for machines, but from servicing the printers and selling parts. ExOne currently is deriving 2/3 of its revenues from its services business.

Overall Assessment

Rapid prototyping technology has revolutionized the way parts are engineered and designed. Don’t expect to find 3D printers on the shelf at Power Buy in Phuket this week, however, the 3D printer is finally coming to the consumer level. 3D Systems (NYSE: DDD) has a home-based printer for a starting price of US$1,299. But this printer can only print an object the size of a basketball and can only print in one color. Companies and universities are now the main users of 3D printing but remember the first personal computer began in the same way before hitting the consumer level. The 3D printing business has major potential for growth. The sector is volatile and is not for the risk adverse but for long-term investors, the sector holds tremendous potential.

Don Freeman is president of Freeman Capital Management, a Registered Investment Advisor with the US Securities Exchange Commission (SEC), based in Phuket, Thailand.

He has over 15 years experience and provides personal financial planning and wealth management to expatriates. Specializing in UK and US pension transfers. Call 089-970-5795 or email: freemancapital@gmail.com.

This article appears in more detail in the current issue (April 27-May 3) of the Phuket Gazette newspaper, on sale at newsstands throughout the island. Digital subscribers may download the full issue, this week and every week, by clicking here.

— Don Freeman