Superlon Holdings Bhd
(April 10, RM3.49)
Maintain buy with a higher target price (TP) of RM3.64: Superlon has set up a wholly-owned Vietnamese subsidiary recently. It plans to strengthen its presence in Vietnam and also to use it as a base to penetrate into other Indochina markets. 

The move is commendable as Vietnam is already one of its top three markets and having a more significant presence there could further boost customers’ confidence, provide better after sales service, as well as adapt to change in demand more quickly. Its new warehouse could lead to better sales. 

The company is able to further boost its production capacity through the new warehouse which is now completed through optimising its layout plan. We estimate that the company may further boost output by another 10% to 20% once the new plan is carried out. 

The shorter lead time to serve customers from the additional floor space could also lead to higher sales. Proposed share split of one to two. It has announced this corporate exercise, which is one of the very few since its listing since 2007. 

The exercise is expected to be completed by December. Its share base will be enlarged to 160 million shares from the 80 million shares currently. This should improve its share liquidity in the market. 

Upon completion of the exercise, our ex-TP will be adjusted to RM1.82 accordingly. Financial year 2017 (FY17) is expected to be another record year. 

We expect Superlon to record higher earnings this year compared with FY16 based on the performance of its first nine months. That will chart a continuous growth for five years. 

We expect FY18 to be a positive year as the company reaps fruits from its new warehouse and market expansion plans. We also expect Superlon to remain in net cash position as RM9.6 million for the new warehouse has been capitalised.

Maintain “buy” with a higher TP of RM3.64 (from RM3.36, ex-TP RM1.82). The new TP is based on a higher 13 times price-to-earnings (previously 12 times) of unchanged FY18 forecast earnings per share, which is estimated at 28 sen. We reckon that Superlon deserves a higher valuation due to its earnings growth, net cash position, return on equity of 17% and dividend yield at 3.4%. Hence, we maintain our “buy” recommendation. — MIDF Research, April 10