Result

• FoundPac Group Berhad (FoundPac) posted RM12.5m of revenue in its 4QFY21 (+0.7% yoy and +0.5% qoq). Meanwhile, the Group recorded RM3.3m in its PATAMI in 4QFY21 which contracted 21.1% yoy but grew slightly by 1.9% qoq.

• On the full year of FY2021, The Group recorded revenue of RM49m (-4% yoy) and RM 11.6m of PATAMI, -27.6% yoy.

• Earnings in line with expectation. FY21 full year PATAMI of RM 11.6 m was in line with our in-house forecast of RM 11.5 m.

• Deteriorated profit margin. The Group’s gross profit margin in 4QFY21 was 43% which declined 9ppts yoy (4Q20: 52%) and 5ppts qoq (3Q21: 48%) due to the higher cost of input materials amid flattish revenue.

• Sales drop from Europe cushioned by higher orders in North America. In 4QFY21, FoundPac recorded RM2.3m sales from European customers, down -31% yoy and -40% qoq. However, this was partially offset by increase in orders from customers in North America which chalked up RM5.6m sales (+27% yoy and qoq).

Comments

• Acquisition of remaining equity interest in Dynamic Stencil is expected to boost performance. During current quarter (on 21 July 2021), the Group has further acquired the remaining equity interest (25%) in Dynamic Stencil. We anticipate this will improve the Group’s performance underpinned on the inflated demand of printed circuit board (PCB) benefiting from the rising export of E&E products.

• Automotive segment is envisaged to contribute positively to its earnings in CY2022. The management targets to obtain IATF 16949 certification in current year in order to manufacture and distribute critical auto parts. We anticipate the new segment to contribute positively to its bottom line in CY2022, underpinned by 6% growth in 2022 of TIV in automotive industry.

• Benefiting from robust CAPEX by industry players.With the advent of 5G era, the inflated demand of semiconductors and chips coupled with the aggressive CAPEX of the industry players are poised to benefit the Group’s performance in the future.
   
• Stabilisation of raw material prices likely to elevate the Group’s profit margin moving forward.Imbalance of supply and demand for hard commodity prices due to the pandemic has caused the surge in raw material prices and has dented FoundPac’s FY21 performance. Moving forward, we expect to see the Group’s profit margin to recover with recent stabilisation of material prices.

Earnings Outlook/Revision

• We slash our earnings forecasts for FY22F to RM14.7m (from RM17.2m) after lowering our sales assumption. Meanwhile, we introduce FY23F net earnings forecast of RM 16.7m with the expectation of better performance underpinned by improved profit margin as well as the positive earnings contribution by automotive segment.

Valuation/Recommendation

• Maintain BUY call with a lower target price RM0.92 (from RM1.08) following our earnings downgrade. Our revised target price is derived at 34x of FY22F EPS which is +1 SD of the Group’s 3-year mean PER amid prevailing tech upcycle.

• We favour the Group as its future performance will be driven by the significant CAPEX projection of the semiconductor players and the expectancy of new automotive segment. We opine that FoundPac valuation is undemanding as compared to other tech stocks which are currently trading at 30-45x forward PE.

Source: JF Apex Securities Research - 25 Aug 2021