Period 1Q13
Actual vs. Expectations The
1Q13 earnings of RM9.0m accounted for 32.4% and 39.0% of the street and our
full year estimates of RM27.8m and RM23.1m respectively. While the group’s bottom
line came in above expectations, its top line of RM118.8m was within the street
and our expectations, which accounted for 19.2% and 21.5% of the street and our
full year numbers of RM617.5m and RM552.1m respectively.
Dividend No
dividend was announced during the quarter.
Key Result Highlights
YoY, the
group’s revenue increased 15.5% to RM118.8m vs. RM102.9m in 4Q12, thanks to the
stronger demand in HDD test equipment, which increased its Equipment
Manufacturing segment revenue by RM14.1m to RM99.6m in 1Q13. The bottom line
recorded a net profit (NP) of RM9.0m vs. RM3.7m a year ago due to the higher
revenue, lower cost and a forex gain of RM1.6m.
QoQ, the
revenue was lower by 28.7% due to lower sales from the Equipment Manufacturing
segment (-31.8%) and Precision Engineering segment (-7.6%) as opposed to 4Q12
when the quarter saw strong recovery in the HDD industry from the Thai flood.
The NP, however, increased by 12.2% to RM9.0m vs. RM8.0m in 4Q12 due to the
stronger USD, a more favourable sales mix in the Equipment Manufacturing and
Precision Engineering segments and lower costs for start-up projects.
Outlook Although
the 2H is normally the stronger quarters, the global financial and economic
uncertainties may affect the earnings and growth visibility of the
semiconductor and HDD industries. This will indirectly and directly affect the
growth of the group.
However,
the aerospace industry is expected to provide stability to the group’s
earnings.
Change to Forecasts Revised
down our FY13-14E NPs by 8.7%-11.6% to RM21.1m-RM26.7m due to the normalisation
of HDD test equipment demand after the Thai flood, the slowdown in equipment
spending growth in the semiconductor industry, which is expected to be cushioned
by the aerospace industry.
Rating Downgraded
to MARKET PERFORM
This is
because the stock now offering only a 10% in potential total return and coupled
with weaker earnings outlook.
Valuation Downgraded our TP to RM2.80, based
on a SOP valuation methodology. We expect the group to register RM26.7m in
FY14, of which RM11.6m coming from its core business and RM15.1m from the full
year earnings impact of the aerospace engine casing business.
We value
its core business with an industry’s average PER of 7.0x and peg a market PER
of 15.0x for its aerospace engine casing business division.
Risks Fluctuation
in foreign currencies and cyclical in nature.
Others
Note that
the group has a total ICULS outstanding of RM135m and assuming a 20% conversion
for each of the next 5 years, the number of shares factored in our calculation
of the diluted earnings per share numbers are 6.4m and 12.9m for FY13 and FY14
respectively.
Source: Kenanga
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