THR’s results for its 3QFY12 were weaker than expected, while its 9MFY12 cumulative net profit only accounted for 36.5% of consensus earnings. Such disappointing results were mainly due to the economic slowdown, especially in the Eurozone, and the company’s earnings were further dampened by losses in its associates. We think that THR’s outlook remains challenging and are lowering our FY12 and FY13 earnings forecasts, revaluing the company based on a 0.53x FY13f BV, a -0.5 SD from the mean of its five-year historical trading band. Downgrade to SELL, with a FV of RM1.56.
A weaker quarter. Tong Herr Resources (THR) reported net profit of RM0.7m (-81.5% q-o-q, >-100.0% y-o-y), which was below consensus estimates. The company’s drop in revenue (-6.8% q-o-q, -24.5% y-o-y) was mainly due to the global economic slowdown, especially in the Eurozone, which also led to a drop in PBT for the quarter under review. Both its operating divisions recorded negative q-o-q growth on segmental profit (stainless steel fasteners: -4.4%; aluminium products: -50.7%). On top of that, its management guided that the share losses from the investment in associates have further narrowed the company’s bottomline (3QFY12: -RM2.8m vs 2QFY12:+RM7k).
Outlook still challenging. We think that THR’s profit visibility remains gloomy and the outlook continues to be challenging. This is mainly attributed to the uncertainties in the Eurozone economy coupled with the slow recovery of US as these markets make up the largest revenue contributions to THR. In addition, the global economy has been very fragile since the 2008/2009 global financial crisis, and persistent weaknesses have continued to dampen growth.
Slashing our earnings forecast. We reviewed our valuation model and take this opportunity to revalue the company. Based on our bearish view on the company, we are slashing our earnings projections for FY12 and FY13 by 55.2%% and 46.1% respectively.
Downgrade to SELL, FV RM1.56. We revalue the company based on a 0.53x FY13f BV, -0.5 SD from the mean of its five-year historical trading band, which was also its historical low and derive a new FV of RM1.56. Downgrade to SELL.
Source: OSK
A weaker quarter. Tong Herr Resources (THR) reported net profit of RM0.7m (-81.5% q-o-q, >-100.0% y-o-y), which was below consensus estimates. The company’s drop in revenue (-6.8% q-o-q, -24.5% y-o-y) was mainly due to the global economic slowdown, especially in the Eurozone, which also led to a drop in PBT for the quarter under review. Both its operating divisions recorded negative q-o-q growth on segmental profit (stainless steel fasteners: -4.4%; aluminium products: -50.7%). On top of that, its management guided that the share losses from the investment in associates have further narrowed the company’s bottomline (3QFY12: -RM2.8m vs 2QFY12:+RM7k).
Outlook still challenging. We think that THR’s profit visibility remains gloomy and the outlook continues to be challenging. This is mainly attributed to the uncertainties in the Eurozone economy coupled with the slow recovery of US as these markets make up the largest revenue contributions to THR. In addition, the global economy has been very fragile since the 2008/2009 global financial crisis, and persistent weaknesses have continued to dampen growth.
Slashing our earnings forecast. We reviewed our valuation model and take this opportunity to revalue the company. Based on our bearish view on the company, we are slashing our earnings projections for FY12 and FY13 by 55.2%% and 46.1% respectively.
Downgrade to SELL, FV RM1.56. We revalue the company based on a 0.53x FY13f BV, -0.5 SD from the mean of its five-year historical trading band, which was also its historical low and derive a new FV of RM1.56. Downgrade to SELL.
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