AGM Summary
1. Impact of Covid-19 to FPI
Covid -19 impact started from 18th March. Only two weeks of production loss during Q1 FY20, the net profit had decreased by 32%. The management mentioned that there was nearly zero sales for April and limited production on May that slowly increased its operation to 30-50%. June has recovered into 100% operation.
2. Future prospect of FPI for FY20
Existing sales looks positive but the management remain cautious on year end sales.
3. New product mentioned in Annual Report explanation by the management
FPI jointly design & develop with Wistron (ODM) to introduce new products for clients as mentioned in Annual Report. Since last financial year (2019), the new product had contributed in revenue and it will continue this year.
4. Question on implementation of automation mentioned in Annual Report
FPI invested new injection machines, CNC machines, fully and semi-automated machines as mentioned in Annual Report. The management mentioned that FPI is having difficulty to implement full automation to their production lines as automation is to reduce man power however there are so many models & products require man power to do packing. Hence, man power is still necessary for FPI.
5. Reason of lower profit margin and higher revenue recorded in FY19
Revenue increased in FY19 however profit margin dropped. The management explained that due to the increase in basic salary and higher overhead costs. Lower profit margin will still maintain for the coming financial year as 3 more new products will introduce for customers by end of this year.
6. Impairment loss issue reported in FY19
Impairment loss on trade receivables of RM 2.6mil declared in last financial year was from one of the MNC customer. The customer was having cash flow issue and unable to repay within the 180 days of payment term. Hence, the management had to make impairment for this.
Good news is the customer has cleared the payment and the management will write back the bad debt in Q2 FY20.
7. Concern of FPI clearing backlog orders
The management also mentioned that normally Q2 is normal season, FPI has its peak season during Q3. However, as the lock down happened on the mid of March, the management have to reschedule all the sales order shipment date to June. Therefore, production lines are having peak load in June.
8. Contribution of new products
The management explained that new products have contributed some in FY19 revenue, if the sales order continues, the operating cost will reduce as initial investment on machinery was done in FY19.
9. Concern of cutting man power or pay cut during MCO
The management said no staff been layoff. Top management level had cut transportation allowance and some incentives been cut for certain staffs, all staffs have gave full cooperation.
10. Future impairment issue
At the moment no impairment loss recorded.
11. Supply chain issue during MCO
The management replied that no issue on the supply chain.
12. Concern on Wistron collaboration
FPI and Wistron work together as ODM and the product selling price is tallied to actual market price.
During FY18, FPI purchased materials from Wistron and new products developed and sold under FY19 as shown in table below.
13. Other expenses explanation
Foreign exchange gain/loss are recorded in other expenses/income statement.
Point of view after attending AGM
I believe that the coming Q2 will have more negative impact from MCO. I reckon that net profit will reduce by 50% compared to Q2 FY19 due to only one and half month of operation. Higher operating cost will cushion by the write back of bad debt of RM 2.6 mil in this quarter.
Therefore, I expect EPS for Q2 FY20 to be 1.8 sen. Q3 FY20 will then be fully recovered to the normal condition if covid-19 pandemic is under controlled globally. Q4 FY20 will have higher revenue and profit margin. Hence, I believe Q3 and Q4 FY20 will achieve 6.4 sen and 4.3 sen respectively. (With 20% increase in EPS compared to Q4 FY19 with the absent of impairment loss and three new products will be launching for customers; higher revenue & lower profit margin for new products)
Overall FY20 EPS to be 14.7 sen. Dividend payout based on 60% ratio expected to be 8.82 sen.
By taking PE = 9 or 10, TP to be RM 1.32~1.47. Forecast DY for FY20 to be 6%.
The current share price is still within the target price, buy when FPI trades at undervalue price.
Technical Analysis:
Stock price is moving in a upward triangle pattern, waiting for price to break above or below the pattern. If the price is able to break above the triangle pattern, FPI will have strong upward momentum, else price will stay side way or downtrend. Support at RM 1.372 (EMA 30), resistance at RM 1.44 (Fibo 0.618).
