Will Formosa Prosonic Industries Bhd Make a Blast For Investors?

Formosa Prosonic Industries Bhd (FPI) is a leading manufacturer of high quality sound systems in Malaysia. It specialises in woodworking, plastic injection, PCB assembly and finished-product assemblies of conventional speaker systems. Its expertise has grown to include productions of wireless and bluetooth systems.

As of 16 October 2019, FPI’s market capitalisation is valued at RM 395.8 million. In this article, I’ll cover on FPI’s financial results and valuation ratios. Hence, the following are 10 things to know about FPI before you invest.

  • Revenue
    In 2014, FPI has recorded its worst financial results as the management was realigning its major focus into audio system manufacturing and has disposed of its stakes in non-core businesses. FPI has formed a strategic alliance with a main client to diversify its product range into the area of musical instrument. The alliance paid off with revenues increasing from RM 252.1 million in 2014 to RM 560.5 million in 2018.

Source: FPI’s Annual Reports

  • Profitability
    Earnings had improved gradually in 2015-2016 and finally, have jumped substantially in 2017-2018. It has made about RM 40 million per year in the 2-year period. Its Return on Equity (ROE) has reached double digits, making above RM 10.00 in annual earnings from each RM 100.00 it has in shareholders’ equity in 2017-2018.

Source: FPI’s Annual Reports

  • Cash Flow Management
    From 2014 to 2018, since its business alignment, FPI has generated:

    – RM 141.5 million in cash flows from operations.
    – RM 11.3 million in income distribution from short-term funds.
    – RM 70.5 million in net disposal of subsidiaries and associates.

    Out of which, FPI has spent:

    – RM 88.0 million in net capital expenditures.
    – RM 74.2 million in dividend payments to its existing shareholders.

    As a collective whole, FPI has enlarged its cash reserves from RM 130.8 million in 2013 to RM 167.7 million in 2018.

  • Latest 12-Month Results
    For the last 12 months, FPI has made RM 671.3 million in revenues and generated RM 39.8 million in earnings or 16.0 sen in earnings per share (EPS), which is an improvement from its previous 12-month results.

Source: FPI’s Quarterly Reports

  • Balance Sheet Strength
    As of 30 June 2019, FPI does not have any interest-bearing debt and as such, having 0% in gearing ratio. In addition, it has RM 364.8 million in current assets and RM 194.3 million in current liabilities. As such, FPI’s current ratio is 1.88. Out of FPI’s current assets, it has RM 128.0 million in short-term funds, where it generates regular income distributions to FPI. For the record, FPI has received RM 3.0 million in distributions on a per annum basis in 2017-2018 from its short-term funds.

Source: FPI’s Annual Reports

  • Major Shareholders
    As of 29 March 2019, FPI’s five largest shareholders are as follows:

– Shih Chao Yuan is the Group Managing Director of FPI.
– Shen Ching Yao who is a Corporate VP of Winston is appointed as one of FPI’s non-executive directors.
– Hartini binti Zainal Abidin who is VP of the Legal Department of PNB is also appointed as a non-executive director of FPI.

  • Risk 1: Concentration of Major Customers
    For financial years 2017 and 2018, when FPI’s profits were soaring at its highest, they were contributed by two customers. They have accounted for 65% of total revenues brought in for FPI in the two financial years.

Source: FPI’s Annual Report 2018

  • Related Party Transactions
    As of 30 June 2019, FPI has revealed that it has significant related party transactions with its major shareholder, Winston Corporation. From its Q2 2019, FPI has achieved and incurred the following:

    – RM 68.0 million in sales of speaker to Winston.
    – RM 41.2 million in parts supply from Winston.

  • P/E Ratio
    As of 16 October 2019, FPI is trading at RM 1.60 per share. Thus, it has a current P/E Ratio of 10.0 based on its latest 12-month EPS of RM 0.16 presently.

  • P/B Ratio
    As of 16 October 2019, FPI’s net assets a share is RM 1.15. Hence, FPI’s current P/B Ratio is 1.39, above its 5-year average of 1.14.

  • Dividend Yields
    In 2018, FPI has paid out 10.0 sen in dividends per share (DPS), which is a continuous improvement from 3.0 sen in 2014. Hence, if FPI is able to maintain its DPS at 10.0 sen per annum in future years to come, then, it would have a dividend yield of 6.25% per annum.

Source: FPI’s Annual Reports 

VIA’s Verdicts
Since 2014, FPI has achieved improvements in revenues, profits, and as well as dividend payments to its existing shareholders. The results are contributed by a couple of key customers where one of them is Winston Corporation, its biggest shareholder currently. So, would you invest in FPI today at RM 1.60 a share? 

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