We like FPI due to its fruitful diversification from conventional speakers into the audio system and component/ musical instrument segments coupled with the synergistic partnership with an established global EMS, Wistron (parent company with 28% stake). We expect strong core FY18-20 EPS CAGR of ~19%, driven by (i) bullish speaker market outlook, (ii) robust expansion, (iii) strong tie-up with Wistron, (iv) weak RM and (v) beneficiary of the US-China trade war. Valuation is cheap at 9.5x FY19 P/E (27% lower than its peers), supported by solid 50.7 sen per share or 32% of total market cap (ex-cash FY19 P/E is 6.5x) and commendable FY18-20 DY of 4.7-8.3%.

HLIB institutional research has a BUY rating with TP of RM2.19 (+40% upside). Listed in June 1994, FPI is one of the leading manufacturers of high quality sound system in Malaysia with a strong team of audio experts each of whom has over 30 years of experience in designing, manufacturing and marketing of sound system products to worldwide multinational companies. According to Technavio, global speaker market will post a 4-year CAGR growth of 17% from 2018-2022 to reach USD27bn, the key factor driving the growth of the market is the rise in popularity of wireless streaming of audio device. HLIB institutional research initiated a BUY rating on 7 Nov (please refer to the initiation report for more details) with a fair value of RM2.19, pegged to 13x of average FY19-20 EPS. This valuation is in line with the average PE of the global EMS industry.

Poised for a LT downtrend line breakout. After hitting 52w low of RM1.15 (4 Apr), FPI’s share prices are closing above the support trendline (RM1.46) and key multiple SMAs to end at RM1.56 yesterday, which bodes well for an eventual LT downtrend line breakout (RM1.60) from 52w high of RM2.04 (8 Jan). A successful breakout above this level will spur prices higher to test RM1.70 (38.2% FR) before reaching our LT objective at RM1.83 (23.6% FR). Key supports are RM1.50 psychological level and RM1.46. Cut loss at RM1.43.

Source: Hong Leong Investment Bank Research - 15 Nov 2018