Formosa Prosonic Industries

KEY POINTS:

• > 10% Dividend Yield (Historical)
• Significantly low PER of around 6x only
• Market price of RM0.93 (as of 16-Nov-2010) close

Company Background
Based in Port Klang, Formosa Prosonic Industries Bhd or “FPI” was established in 1989. The Company gained its listing status on Bursa Malaysia on 17 June 1994. From business point of view, FPI produces a variety of products which include Home Theatre Audio Systems, Satellite Speaker, High-End Audio Systems, AV Racks, WI-FI Internet Radio, WI-FI Internet Adaptor, Outdoor Speaker, Bluetooth Speaker, Receptor Radio, CD Radio & Car Speaker Series.

The Group’s manufacturing facilities are located in Port Klang (Selangor), Sungai Petani (Kedah) and Dongguan (Guangzhou, China). Overall, the Group owns 2,908,170 square feet in total of land area.

High-End Audio Speaker

AV Racks

Car Speaker Series


Bluetooth Speaker


Others



The Company deals mainly with Multi National customers with strong brand such as SONY, JVC, SHARP, BOSTON, AE, PANASONIC & KENWOOD. In short, FPI specializes in the speaker system technology and is often been consulted by its customers on every stage of development, from design, materials up to finished goods.

FPI's Clients

FPI also owns 26.12% or 46.44m shares of another public listed company called Acoustech Berhad which manufactures audio speaker systems, woofer, chemicals paints and electrical equipment. Using Acoustech’s closing price of RM0.78 as of 16-Nov-2010, the 26.12% stake translates into value of RM36.22m (or 14.76 sen per share).

Financials

• Net profit in FY2010 (ended March) jumped 175.13% y-o-y to RM36.11m despite lower revenue. The extraordinary result is achieved due to better product mix and plant use, cost control measures and greater efficiency.
• AV Racks business sales has grown 38% to achieve sales of RM108m in FY2010. In the 2010 Annual Report, FPI’s Chairman Mr Jhang Tzu Hsiong has expressed his optimism that AV Racks "would continue to receive good market response and its business volume to remain encouraging".
• Dividend almost doubled from 5.5 sen in FY2009 to 10 sen in FY2010. This translates into a very attractive historical dividend yield of 10.75%.
• Strong balance sheet with almost no gearing.
• Net cash swelled to RM89.9m in 1Q2011, vs. RM80.7m in 4Q2010.
• Healthy cash flow with positive free cash flow (Net CFO – Capex) of RM35.08m in FY2010.

Comments

• FPI seems very attractive based on its historical dividend yield of 10.75%. Honestly, there are not many (infact, almost none) stocks which can give such high dividend yield.
• FPI 1Q2011 result is also very encouraging with revenue growing at 51.8% q-o-q.
• 1Q2011 pretax profit surged 150.1% to RM14.9m.
• If 1Q2011 is sustainable in the remaining 3 quarters, annualized FY2011 net profit (equity) will grow 18.0%, with annualized FY2011 EPS at 17.34sen.
• How much PER are you willing to assign for Company which manufactures and sells speaker systems? Its associates Acoustech is trading at around 13x PER (market price 78 sen, 2010 EPS of 6.05 sen).
• Assume holding Company discount of 30%, FPI probably should worth 9x PER. Times that 9x PER to 2010 EPS of 15.42 sen…. I leave this part for those of you who know basic Maths. And please calculate the potential upside also, just in case you agree with the assumptions here…