Period 1HFY13
Actual vs. Expectations
The reported 1HFY13
net profit of RM111.9m accounted for 50% and 49% of our full year forecast and
the consensus estimates respectively.
Dividends The
company has declared a first single tier interim dividend of 3.5 sen per share.
The entitlement date has been fixed on 23 November 2012.
Key Results Highlights
QoQ, the revenue
increased 3% but net profit grew at a faster rate of 9.8% due to the
improvement in the net margin by 150bps. We understand that the improved
profitability was due mainly to better operation efficiency i.e. improved line
speeds as well as cost-containment measures alongside the lower raw material
cost. As for the top line, while the growth rate seems marginal, it is somewhat
impressive against the declining trend in ASP. The lower ASP (-0.9% for nitrile
and -9.4% for latex gloves QoQ) is due to the substantial easing of nitrile and
latex input costs as well as price competition. During the quarter, the
utilisation rate further improved to 90.7% from 89.5% (vs. our expectation of
85%) despite the increase in capacity by two production lines or 285m pieces
glove p.a. during the quarter.
YoY, the revenue and
net profit jumped 11% and 27%, respectively due to the abovementioned reasons (nitrile
and latex dropped >20% and >30% YoY respectively) and also the weaker
ringgit (2QFY13: RM3.12 vs. 2QFY12: RM3.02).
Outlook With
the completion and commencement of Plant 6, there will be some 680m pieces of
additional glove capacity, lifting the total capacity to more than 10b pieces
p.a.. This should further boost its revenue
in 2HFY13.
Coupled with the
improved efficiency and the continued downtrend in latex (<RM6.00/kg
currently) and nitrile prices, we reckon the net margin should be able to be supported/hovering
around the 20% levels.
Change to Forecasts
We have fine-tuned
our earnings estimates after adjusting our assumptions on the utilisation
rates, ASPs and profit margins. Our FY13 and FY14 net earnings have been
revised to RM229.2m and RM256.5m respectively from RM 225.8m and 245.3m,
representing marginal adjustments of 2% and 5% respectively.
Rating Maintaining MARKET PERFORM as the stock offers a <10% total return
even after our Target Price revision.
Valuation In
line with our earnings revision and the revived investment sentiment in the
sector, we have revised up our Target Price to RM5.12 from RM4.65, implying 15x
CY13 PER, which is the +1 standard deviation above the 3-year average PER and
also in line with the valuation of FBM KLCI.
Risks (i)
Lower utilisation rate (ii) squeeze in margin & (iii) fluctuation in
ringgit and commodity prices.
Source: Kenanga
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