MSPORTS (FV RM0.89 - BUY) FY11 Results Review: Walking With Confidence

Multi Sports’  FY11 earnings came in  above our  estimates. The  stronger performance was underpinned by better demand for MD2 products whose revenue surged by 77.4% y-o-y. Margins continue to contract on the back of higher input costs and depreciation incurred for production expansion, netting off the effect of higher  selling prices.  A  tax-exempt final dividend of 3.11 sen per share was proposed. Maintain BUY with a new FV of RM0.89 as we revise our FY12 earnings upward to incorporate the stronger results.

Surpassing expectations. The group’s full-year revenue and net profit came in strongly at RM430.3m and RM80.6m, representing a stellar y-o-y growth of 40.5% and 16% respectively. The better turnover was buoyed by the sales of EVA MD2 products, which surged 77.4% y-o-y, offsetting  the weaker performance of the MDI segment which registered a negative 12.1% growth. The revenue for TPR and RB rose by 4.1% and 6.4% respectively. The sales volume for MD2 shoe soles soared 62.9% y-o-y, but this was offset by declining sales volumes for TPR (-3.9%), RB (-12.8%) and MD1 (-17.8%) products, bringing the total sales volume growth to 26.2% y-o-y.

Slimmer margins.  Although the average selling price increased from RMB19 to RMB21.16 per pair, the gross profit margin declined by 2.2% to 30.2%, no thanks to higher production costs pertaining to labour, raw material and depreciation arising from its production expansion. Similarly, the EBIT margin narrowed to 25.8% from 27.6%. The group’s net margin trended lower as well by 4%, mainly due to: (i) lower gross margin, (ii) the absence of regular tax reductions and exemption, (iii) higher depreciation expenses due to  capacity expansion, and  (iv) recognition of TDR listing expenses and additional provisions for withholding tax.

Maintain BUY.  We  revise up our FY12 earnings by 4.7% to factor in the stronger demand for MD2 products as well as take this opportunity to introduce our FY13 forecast of RM107.9m. The FV is bumped up to RM0.89 pegged to 5x FY12 EPS. Maintain BUY as the group continues to deliver satisfactory results and  its share price  is currently trading at a cheap PER of 2x. A re-rating for China-based companies, including Multi Sports, is on the cards as the IPO of China Stationery Limited (CSL) was well-received, with its share trading at a much higher PER of 6.9x.

Source: OSK188