$FPI / 9172 (FORMOSA PROSONIC INDUSTRIES BERHAD) Q1FY24 Takeaways

📌 YoY
1. Revenue in Q1 FY24 increased significantly to RM149.2 million, a 36.6% growth compared to RM109.2 million in the same period last year, mainly due to higher sales volumes.
2. Pre-tax profit increased by 195%, attributed to higher sales and foreign exchange gains.
3. Sales of speaker products to Wistron Corporation grew by 41% YOY, and supplied components increased by 67%.

📌 QOQ
1. Revenue for the quarter decreased by 3.1% to RM149.2 million compared to RM153.9 million in the previous quarter, primarily due to lower sales volumes.
2. Pre-tax profit decreased by 1.7% compared to the previous quarter.

📌 Advantages
1. Net Cash Company: The company maintains a strong net cash position.
2. Stable High Dividend Payout: Greater than 5%.
3. Consistent Profit Margin: Maintained between 15% - 20% over the past four quarters, thanks to the sales mix and a strong US dollar.
4. Strong Major Shareholder: Wistron Corporation, a publicly traded company on the Taiwan Stock Exchange, holds a 27% stake in FPI and is also the company’s major customer. Wistron’s sales have significantly improved this year but are still below FY2022 levels.
5. Reputable Clients: FPI's main clients are globally recognized brands, with business relationships spanning from 8 to over 30 years.
6. Market Growth: According to the Musical Instruments Global Market Report 2024, the musical instruments market is expected to grow steadily in the coming years. By 2028, the market size is projected to reach USD17.9 billion, with a compound annual growth rate (CAGR) of 4.8%, driven by increased e-commerce sales and faster urbanization.

📌 Challenges
1. Revenue Volatility: In FY2023, the company's revenue fell by 32% compared to FY2022, as speakers and musical instruments are non-essential goods and face low demand during economic downturns.
2. Customer Concentration Risk: In FY2023, three major customers accounted for 91.9% of total revenue, with the largest customer contributing 53% and the second-largest 32%.
3. Economic Pressures: High inflation and interest rates have reduced demand for non-essential goods.
4. Rising Operating Costs: Increased electricity tariffs and inflation-driven costs.
5. Foreign Exchange Risk: The company imports materials like resin, wood, and metal parts from abroad. Purchases of factory equipment and machinery are also priced in foreign currencies. While some of this risk is offset by export revenues, the remaining risk is managed through long-term contracts.
6. Intense Industry Competition: Cheaper and more accessible manufacturing tools lower the barrier to entry in this industry.
7. Cautious Sales Outlook: Management remains cautious about sales performance in FY2024 due to global economic uncertainties.