In A Growing Phase

FoundPac Group Bhd (FoundPac) is scheduled for listing on 29th December 2016. FoundPac commenced its operations in the trading of precision engineering parts in May 2005. Over the years, FoundPac has expanded into design, development and manufacturing activities, serving semiconductor companies based in North America, Europe and Asia. The group aims to grow its production capacity through acquisition of new machines, diversify its customer base to include end-user industries and establish more sales offices in overseas markets. FoundPac has a clean balance sheet with a net cash of RM20m. Proceeds from the public offering will mainly be utilized for capital expenditure and working capital purposes. We value FoundPac at RM0.63, pegging it at 13x FY18F earnings. Our fair value implies a potential upside of 17%.

 Business overview. FoundPac commenced its operations in the trading of precision engineering parts such as stiffeners, test sockets and hand lids and conversion kits in May 2005. Later it expanded into design, development and manufacturing activities. The group derives over 95% of its sales from the export markets, serving established electronic companies based in North America, Europe and Asia. Its worldwide multinational customers include Qualcomm, Broadcom, Kobe, Synergie and NXP.

 Future plans. The group intends to expand its production capacity through acquisition of new machines from 16 currently to 25. In addition, it plans to diversify its customer base to include end-user industries in order to expand earnings stream as well as reduce the risk of depending on one particular industry. Automotive sector has been identified as one of the potential areas for expansion. FoundPac will continue to grow its export markets by establishing more sales offices in Europe and US.

 Key risks. (1) Highly dependent on a major customer, Broadcom, which accounted for almost 50% of total revenue (2) reliance on major suppliers i.e. ADE accounted for 38% of total purchases (3) failure to meet growing demand could lead to the group losing existing customers and (4) Foreign exchange risk as it is an export-oriented business.

 Fair value of RM0.63 is based on 13x FY18F EPS of 4.9sen, which implies an upside of 17% from its IPO price of RM0.54. Our FY18F earnings growth is supported by i) improved utilization rate on stronger demand and ii) higher production capacity

Research Team