Result

FoundPac Group Berhad (FoundPac) posted RM12.4m revenue in its 1QFY22 result (+0.1% yoy and -0.4% qoq). However, it recorded RM2.4m PATAMI in its 1QFY22, which contracted 22.5% yoy and 28.6% qoq.

Earnings miss expectation. 1QFY22 performance is below our expectation in which net profit only accounts for 16% of our full year FY22 earnings forecast of RM14.7m mainly due to slide of profit margin.

Deteriorating profit margin. The Group’s gross profit margin in 1QFY22 was 40% which declined 6ppts yoy (vs 1QFY21: 46%) and 5ppts qoq (4QFY21: 43%) due to the higher cost of input materials in Precision Engineering segment as the surge of raw material prices pursuant to the disruption of global supply chain since year 2021.

Revenue lost from European customer was offset by North American segment. FoundPac experienced drop in sales, -26% yoy and -19% qoq from European segment. Fortunately, this was cushioned by the rise in sales for its North American segment, +31% yoy and +13% qoq.

Dividend declared. An interim dividend of 0.5 sen per share has been declared. We expect full year dividend of 1.5 sen which translates into a yield of 2.04%.

Comments

Fail to pass on the surge of cost to customers. The continuous deterioration of profit margin of FoundPac has reflected the weak bargaining power of the Group. The Group was not able to pass on the increased cost to its customers in terms of higher selling prices.

Synergy after the acquisition of SDKM Technologies. The Group completed its acquisition of 70% equity interest in SDKM on 15 Oct 2021. The acquisition rendered FoundPac an opportunity to venture into market of wire and cables. Also, the Group may leverage on each other’s customer base to cross-sell products within the enlarged entity. In view of attractive prospects in E&E sector, we believe its venture into wire and cable business is potentially augur well for the growth prospects of the Group in the long term in tandem with the business synergies generated within its semiconductor segments in the Group.

Expecting profit margin to rebound in the midst of recovery in global economy. The shed of profit margin of the Group since 2021 was mainly due to the supply chain disruption during the global lockdown. Nevertheless, we expect the Group’s profit margin to recover in 2H22FY with the stabilisation of raw material prices.

Outlook still favourable on the back of robust demand. With the advent of technology era, the inflated demand of semiconductors and chips will prompt more testing, and hence benefiting the Group’s in the medium and long term.

Earnings Outlook/Revision

We slash our earnings forecast for FY22F to RM13.4m (from RM14.7) after cutting the Socket and Stiffeners’ profit margin assumption within the semiconductor segment. Meanwhile, we retain FY23F net earnings forecast of RM 16.7m with the expectation of profit margin to recover partly driven by profit contribution from the new business venture.

Valuation/Recommendation

Downgraded from BUY to HOLD call on FoundPac with a lower target price RM0.76 (from RM0.92) following our earnings downgrade and lower PER assigned. Our revised target price is now derived at 32x of FY22F EPS which is +0.5 SD of the Group’s 3-year mean PER. Our target price renders a 3% upside from its current share price of RM0.735.

Source: JF Apex Securities Research - 25 Nov 2021