AJIYA (NOT RATED) Discontinuing Coverage: Remains a Good ETP Play

Ajiya’s 1QFY12 revenue came in within our expectations, accounting for 24.4% of our estimates but its net profit only constituted 20.6% of our projections. Revenue and net profit grew 10.4% and 8.4% y-o-y respectively but shrank on a sequential basis by 5.7% and 11.7% q-o-q respectively. Due to the reallocation of resources and lack of positive rerating catalysts, we are discontinuing coverage on Ajiya. Our previous valuation of RM1.94 was premised on 6.6x FY12 EPS.

Largely in line. Ajiya’s 1QFY12 revenue came in within our expectations, accounting for 24.4% of our estimates but its net profit only  made up  20.6% of our projections. The increase in revenue was mainly due to the increase in the products range and supply to projects stemming from the government’s Economic Transformation Programme (ETP). On a sequential basis, revenue and net profit shrunk 5.7% and 11.7% respectively due to lower turnover and higher contribution from lower margin products compared to the previous quarter. Nonetheless, we expect the group to perform better sequentially as the spillover effects from the ETP projects will benefit the group, as evidenced by its better y-o-y performance in 1QFY12.

Expanding regionally. The group is also expanding its business regionally by investing RM30m to set up a safety glass  processing plant in Thailand this year (the company’s second after a metal roofing manufacturing plant here) as it intends to capitalize on the reconstruction activities following the  massive  floods that hit the country last year.  Its rationale for having two plants in the country is to enable the group to serve its clients more efficiently. The group is also planning to venture into Cambodia and Myanmar to capitalize on the growth opportunities in these up and coming Asean countries. We think that the expansion plan is positive given the group’s net cash position – backed by a solid reserve amounting to RM147.9m as at 29 Feb 2012 as the cash could be invested to yield higher returns for shareholders in the long term.

Discontinuing coverage.  Due to the reallocation of resources, we are discontinuing coverage on Ajiya.  Although the stock offers attractive dividend yields, short-term interest on the stock may be hampered by its illiquidity. Our previous fair value of RM1.94 was based on 6.5x FY12 PER.

Source: OSK188