GW Plastics Holdings - Going through the entire exercise

Period    3Q12/9M12

Actual vs. Expectations   The 9M12 net profit (NP) of RM16.0m was broadly in line with our estimates, making up 61.4% of our forecast of RM26.0m. This is because the 9M NP historically tends to be lower, ranging between 67% and 72%. 

Dividends   No dividend was declared for the quarter and we do not expect any dividends from the group going forward until its recent corporate exercise is completed.

Key Results Highlights

 YoY, the 3Q12 revenue increased 11.4% on the back of a higher sales volume mainly from export sales (+23.8% YoY). PBT grew at a faster rate of 54.9% YoY due to the higher sales volume as well as higher margin from a lower cost of raw materials. However, NP suffered a decline of 14.9% YoY amid a tax credit arising from the reinvestment allowance claimed in 3Q11.

 Meanwhile, the 3Q12 revenue dropped 3.1% QoQ as 1Q and 3Q are generally weaker, while there was also the factor of lower resin price as well. The NP also came in much lower by 27.3% QoQ due to  provision for doubtful debts and realised forex loss.  

 As a result, the 9M12 NP made up only 61% of our FY12 estimate. Nevertheless, on a YoY basis, the group posted a 11.3% increase in revenue due to reasons similar to the ones mentioned above. The NP also edged 5.8% higher YoY despite a higher tax bracket.

Outlook   We continue to like the packaging industry due to the lower plastic resin price cycle. Moreover, we believe the company will register stronger results in the 4Q12 to match our full-year estimate. 

 Nevertheless, due to the recent disposal of its subsidiaries to Scientex, the company will eventually be an empty shell. Thus, we are ceasing our coverage on GW Plastics in favour of potentially initiating coverage on Scientex after the completion of the above corporate exercise between the two companies. 

 

Change to Forecasts  Maintaining our FY12-13E NP of RM26.0mRM29.4m.

Rating  CEASING COVERAGE 

Valuation    We are ceasing coverage on GWPI as it will be disposing all its business operations to Scientex. Nevertheless, we believe that investors who have exposure to the stock should go through the entire exercise as it still offers a 7% return to our TP of RM1.19.

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

Source: Kenanga