GW Plastics Holding - 1H12 within our estimates

Period    1H12

Actual vs. Expectations

 The 1H12 net profit (NP) of RM11.4m was broadly in line, making up 44.5% of our forecast of RM25.7m. This is in line with our expectations as 1H is seasonally slower as compared with the 2H of the year (1H11 NP of RM8.7m contributed 44.7% of FY11 full year earnings of RM19.6m).

Dividends   The company declared a second interim single tier dividend of 1.5 sen per share, making up a total net dividend per share (NDPS) of 3.0 sen for the year so far. 

 The 61.9% payout ratio for 1H12 came in above its dividend policy of a minimum 40% and amounted to 69.0% of our full year NDPS estimate of 4.4sen. That said, we still maintain our estimate for now and are looking for another 1.4 sen payout for the remaining quarters of the year.

 Our total NDPS translates into a full year high dividend yield of 5.9%.

Key Results Highlights

 YoY, the 1H12 revenue increased 11.2% on the back of higher sales from local (+6.7% YoY) and export sales (+14.5% YoY). NP grew at a faster rate of 30.8% YoY due mainly to higher sales volume and higher margin recorded from lower cost of raw materials (see overleaf).

 2Q12 revenue improved 10.3% QoQ due mainly to higher sales volume and higher selling price. NP, on the other hand, jumped 20.2% QoQ due mainly to a lower tax bracket of just 9.9% (vs 22.5% in 1Q12).

Outlook   We continue to believe that the company will benefit from a lower plastic resin price cycle due to the gradual increase in the supply of new petrochemical capacities and its timely capacity expansion, which will be able to capture the rising demand for both its blown and cast films.

 

Change to Forecasts

 Maintaining our FY12-13E NP of RM25.7m-RM35.3m for now, pending any new updates from the analyst briefing next week.

Rating  Maintaining OUTPERFORM 

Valuation    With its strong earnings growth and attractive net dividend yield of 5.9%, the stock offers a total returns of 16% to our TP of RM0.86, based on a targeted forward PER of 8x over its FY12 EPS of 10.8 sen.

Risks   High oil price volatility may hit the company’s earnings.  

Source: Kenanga