Period 3Q13/9M13
Actual vs. Expectations
The 3Q13 core net profit of
RM15.6m brought the 9M13 net profit to RM42.1m. This was above our (RM53.9m) and
the consensus (RM50.8m) expectations, accounting for 78% and 84% of the above
numbers respectively.
Dividends A DPS of 1.2 sen was declared, bringing
9MFY13 DPS to 3.4 sen. This is around 94% of our estimated FY13 DPS of 3.6 sen.
Key Results Highlights
QoQ, the 3Q13 net profit was up
(+9.2%) due to the slightly higher revenue and lower tax cost. This is despite a
lower EBIT margins (-5.7%) due to the variance in the product mix for the
quarter.
However, on a YoY basis, the 3Q13 net profit was up a whopping
50.9% due to the growth in the trading division (+24.6% in revenue and +1.7ppts
in EBIT margin) and the recovery in the
manufacturing division (+122.7% in revenue and a turnaround from a loss to an EBIT
of RM21.2m with a margin of around 11.5%).
On a YTD basis, the 9MFY13 EBIT improved to RM69m versus
RM37.6m in 9MFY12.
Outlook The trading and manufacturing divisions
will continue to be buoyed by the: 1) heightened project flows into the oil and
gas sector; 2) a recovery of the stainless steel business (which is likely to
break even by year-end) and 3) contributions from new markets with the purchase
of Nautic Steels (in Mar-12).
Change to Forecasts We have fine-tuned our earnings estimates
to account for the higher manufacturing revenue (which resulted in our FY13-15E
revenue increasing by 5.6%, 5.5% and 4.8% respectively as we were previously
too conservative.
We note that our full year FY13 forecast implies a weaker 4Q13
but this is to be expected due to the upcoming Chinese New Year celebration,
which falls earlier.
We are also increasing our FY13E DPS to 4.6 sen to account
for another 1.2 sen payout; this implies around a 40% payout for the year which
we maintain heading into FY14-15. This also increased our FY14-15 DPS to 5.3
sen and 6.0 sen (from 4.2 sen and 4.7 sen) respectively.
Rating Maintain OUTPERFORM
Valuation Our forecasts changes result in our target
price rising to 85 sen (versus 81 sen previously) based on an unchanged 9.0x
targeted PER on CY13 FD EPS of 9.4sen.
The chosen PER valuation above approximates 8.55x, which is
the +0.5 SD level of the 5-year historical forward mean PER and is also similar
to the targeted PER ascribed to Uzma for its small cap status.
The 12.9% upside of the share price and the calendarised
yield of 6.9% yields a total return of c.18.9% for the stock.
Risks 1) A downturn in the oil and gas sector
could impact the company’s prospects and 2) any significant swings in raw material
cost could impact the margins of its divisions.
Source: Kenanga
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