Multi Sports’ 9MFY12 results again fell short of our expectation, pulled down by lower revenue and weaker margins. The lower-than-expected earnings were mainly due to fewer orders as a result of rigorous client screening, as well as higher operation costs. We expect margins, which eased y-o-y, to remain flat in the near future amid higher labour and overhead costs. Maintain BUY, with a new FV of RM0.42, as we revise down our FY12 and FY13 numbers.
Another weak quarter. Multi Sports’9M12 turnover and earnings dipped 8.1% and 19.4% y-o-y to RM279.9m and RM46.8m respectively. The weaker results were largely due to: i) lower orders arising from stringent client screening to prevent bad debts, and ii) higher raw material costs coupled with rising labour cost. Revenue in all segments of shoe soles moderated y-o-y in 9M12 (TPR, -28.6%; RB, -6.8%; MD1, -13.6%; MD2, -4.7%), in accordance with the weaker sales volume during the period (TPR, -29.4%; RB, -12.1%; MD1, -14.4%; MD2, -5.0%). The change in sales mix was spurred by market trends and demand. The company’s production utilization rate stood at 77.6%, with total production capacity reaching 45m pairs annually. The average selling price of its products increased marginally y-o-y from RMB21.05 to RMB21.46. On a q-o-q basis, the company’s sales and net profit nudged lower by 1.9% and 6.5% y-o-y respectively on the back of weaker revenue and higher operating costs incurred for advertising and product development (+24.4%).
Margin on a slide. Gross profit and EBIT margins shrank 2.5% and 3%, undermined by higher raw material as well as production costs as labour and overhead costs increased. The average labor cost for every RMB1 sale went up by 30.6% y-o-y, from RMB0.11 to RMB0.14. We believe Multi Sports’ margins will continue to be flattish for the coming quarter.
Maintain BUY. We are cutting our FY12 and FY13 earnings estimates by 14.5% and 14.2% respectively due to higher-than-expected raw material and overhead expenses. We expect the company’s ensuing quarterly results to be flat y-o-y as well due to its ongoing client selection exercise and higher costs. Our FV is lowered to RM0.42 based on revised 3.5x (previously 5x) FY12 EPS, which still provides an upside of over 10% from current levels.
FYE Dec
|
FY09
|
FY10
|
FY11
|
FY12f
|
FY13f
|
Revenue
|
220.8
|
285.7
|
430.3
|
398.8
|
426.1
|
Net Profit
|
57.6
|
65.7
|
80.6
|
62.0
|
67.6
|
% chg y-o-y
|
24.6
|
14.0
|
22.7
|
-23.0
|
8.9
|
Consensus
| |||||
EPS
|
11.1
|
12.7
|
15.6
|
12.0
|
13.1
|
DPS
|
2.5
|
3.0
|
2.4
|
2.6
| |
Dividend yield (%)
|
8.2
|
9.7
|
7.9
|
8.6
| |
ROE (%)
|
34.5
|
27.1
|
22.9
|
16.1
|
15.4
|
ROA (%)
|
27.3
|
19.6
|
19.4
|
16.8
|
15.7
|
PER (x)
|
2.4
|
2.1
|
1.7
|
2.2
|
2.0
|
BV/share
|
0.30
|
0.47
|
0.68
|
0.74
|
0.85
|
P/BV (x)
|
1.0
|
0.7
|
0.4
|
0.4
|
0.4
|
EV/EBITDA (x)
|
1.2
|
0.8
|
-0.5
|
0.6
|
0.1
|
Results Table (RMm)
FYE Dec
|
3QFY12
|
2QFY12
|
Q-o-Q chg
|
YTD FY12
|
YTD FY11
|
Y-o-Y chg
|
Comments
|
Turnover
|
91.4
|
93.2
|
-1.9
|
279.9
|
304.6
|
-8.1
|
Lower due to lower orders arising from prudent client screening
|
TPR
|
3.7
|
4.3
|
-14.0
|
14.3
|
20.1
|
-28.6
| |
RB
|
2.3
|
2.3
|
0.0
|
7.4
|
7.9
|
-6.8
| |
MD1
|
17.0
|
17.4
|
-2.3
|
52.1
|
60.3
|
-13.6
| |
MD2
|
68.4
|
69.3
|
-1.3
|
206.1
|
216.3
|
-4.7
| |
EBIT
|
19.8
|
21.1
|
-6.2
|
63.7
|
78.7
|
-19.1
|
Moderated due to higher raw material costs and overheads
|
Interest expense
|
-0.2
|
-0.2
|
0.0
|
-0.6
|
-0.9
|
-33.3
| |
Associates
|
0.0
|
0.0
|
n.m
|
0.0
|
0.0
|
n.m
| |
PBT
|
19.6
|
20.9
|
-6.2
|
63.1
|
77.8
|
-18.9
| |
Tax
|
-5.1
|
-5.4
|
-5.6
|
-16.3
|
-19.6
|
-16.8
| |
MI
|
0.0
|
0.0
|
n.m
|
0.0
|
0.0
|
n.m
| |
Net Profit
|
14.5
|
15.5
|
-6.5
|
46.8
|
58.1
|
-19.4
|
Below expectations
|
EPS (sen)
|
2.8
|
3.1
|
9.0
|
12.9
| |||
Gross DPS (sen)
|
0.0
|
0.0
|
0.0
|
0.0
| |||
EBIT margin (%)
|
21.7
|
22.6
|
22.8
|
25.8
| |||
EARNINGS FORECAST
FYE Dec
|
FY09
|
FY10
|
FY11
|
FY12f
|
FY13f
|
Turnover
|
220.8
|
285.7
|
430.3
|
398.8
|
426.1
|
EBITDA
|
66.1
|
83.8
|
121.3
|
93.9
|
102.1
|
PBT
|
61.5
|
77.6
|
109.7
|
82.7
|
90.1
|
Net Profit
|
57.6
|
65.7
|
80.6
|
62.0
|
67.6
|
EPS
|
12.8
|
14.6
|
17.9
|
13.8
|
15.0
|
DPS
|
2.5
|
3.0
|
2.4
|
2.6
| |
Margin
| |||||
EBITDA (%)
|
29.9
|
29.3
|
28.2
|
23.6
|
24.0
|
PBT (%)
|
27.9
|
27.2
|
25.5
|
20.7
|
21.1
|
Net Profit (%)
|
26.1
|
23.0
|
18.7
|
15.6
|
15.9
|
ROE (%)
|
34.5
|
27.1
|
22.9
|
16.1
|
15.4
|
ROA (%)
|
27.3
|
19.6
|
19.4
|
16.8
|
15.7
|
Balance Sheet
| |||||
Fixed Assets
|
53.1
|
119.9
|
121.7
|
129.6
|
139.4
|
Current Assets
|
129.6
|
204.7
|
284.0
|
227.7
|
278.9
|
Total Assets
|
194.5
|
335.7
|
415.2
|
369.3
|
431.3
|
Current Liabilities
|
40.7
|
93.3
|
63.8
|
85.5
|
88.9
|
Net Current Assets
|
153.8
|
242.4
|
351.4
|
283.8
|
342.4
|
LT Liabilities
|
0.0
|
0.0
|
0.0
|
0.0
|
1.0
|
Shareholders Funds
|
153.8
|
242.4
|
351.5
|
385.2
|
439.3
|
Net Gearing (%)
|
Net cash
|
Net cash
|
Net cash
|
Net cash
|
Net cash
|
Source: OSK
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