As an update to previous article (listed in the reference list), FPI proved its resilience by reporting incredible performance on their seasonally weaker quarter in yet another turbulent year. The achievement was mainly attributable to its sales mix and cost control measures that were put in place during such trying times. The performance also reflects the strength of the deep partnerships FPI has nurtured with great care over the years whereby the Group continues to become a tactical and powerful supply chain to their partners.

As in previous years, the Group continued to dedicate its efforts on improving manufacturing processes and quality systems. This includes strengthening its existing management execution systems that brings better control, visibility, speed, and efficiency to allow for optimal level of manufacturing operations. The Group has enhanced the existing tracking systems covering the materials store, production and logistic areas which are crucial not only to reduce downtime and defect issues but also complement Just-In-Time (“JIT”) approach which have effectively minimised production floor area and storage space.

The Group has also continued to invest tactically in new injection machines, CNC machines, fully and semi-automated machines to cope with the on-going quality demand, high volume manufacturing of products and the need to reduce machine downtime risk.

Financials

As described in previous article, FY21 is projected to be another record-breaking year for top line, however bottom line would be slightly dragged by higher cost. Moving forward, I am bullish on FY21’s growth on the back of bullish speaker market outlook and the synergistic partnership with global leader.

Strong earnings record and balance sheet

FPI remained in solid net cash position of RM259.40 million or RM 1.05 per share (37.4% of total market cap) after the dividend paid to shareholders in April 2021.

Annual

FPI’s revenue and net profit grew by 4-year CAGR of 22.2% and 40.0%, respectively from 2016 to 2020. But the latest Q1 FY21 earning has account for 39.5% of the annual earning for FY20 which is impressive.

Quarter

Historically, FPI results chalked in strongest for the 3Q as seen below but the current quarter one has reported almost 3x improvement when compared to their average performance for Q1 since FY2017 with 280% improvement when compared to Q1 of FY20.

Strong track record of dividend pay-out

FPI does not have a dividend policy. However, the company has been paying out generous dividends annually since it was listed in 1994. FPI has declared 14.0 DPS in respect of the latest financial year ended 31 December 2020 (31 December 2019: 11.0 DPS; 27% increment in dividend). Moving forward, DPS is projected to increase in tandem with their earning to 16.0-17.0 DPS for FY21 based on a pay-out of 65%, translating to a dividend yield of 6.0-6.4% (based on previous article’s closing price of RM 2.66).

Valuation

Conservatively, using the trailing twelve months EPS of 27.4 sen (which is higher than estimated in previous article) pegged to 13x PE (in line with the average PE of the global EMS industry based on HLIB research) would give FPI a fair value of RM 3.52. An aggressive PE of 17 because of the explosive growth in recent earning would give a fair value of RM4.66.

This valuation is also supported by the discounted future cash flow valuation method which gives FPI a conservative fair value of RM4.32 and aggressively, based on the projected 5Y-CAGR of 17.8%, FPI could potentially worth RM7.70.

Key take away

FPI remains undervalue based on its solid fundamental with massive upside potential and 5.8% dividend yield of 16.0 sen DPS for FY21 at current price of RM2.76.

Risk

Refer to previous article for potential risks.

What the price is saying?

FPI has recently break out from correction which could potentially indicate resumption of uptrend. Further details about the chart pattern would require more in-depth discussion. Join our free public telegram group for more idea sharing at https://t.me/theglimpsestocks

Disclaimer

The information contained in this article is based on data obtained from internet. However, the data and/or sources have not been independently verified and as such, no representation, express or implied, are made as to the accuracy, adequacy, completeness or reliability of the information.

Investors are advised to make their own independent evaluation of the information contained in this article and seek independent financial, legal or other advice regarding the appropriateness of investing in any equities discussed in this article. Under no circumstances should this article be considered as an offer to sell or a solicitation of any offer to buy any securities referred to herein.

Disclosure

I am long FPI. This article is written as an expression of personal opinions. I have no business relationship with any company mentioned in this article. Join our free public telegram group for more idea sharing at https://t.me/theglimpsestocks

References

1. https://klse.i3investor.com/blogs/FPIattractivevaluation/2021-03-06-story-h1542059868-Recent_steep_correction_of_FPI_may_offer_attractive_entry_ahead_of_bull.jsp