This article first appeared in The Edge Financial Daily on November 3, 2017

Perusahaan Sadur Timah Malaysia (Perstima) Bhd
(Nov 2, RM4.58)
Initiate coverage with fully valued and a target price (TP) of RM4: We initiate coverage of Perusahaan Sadur Timah Malaysia (Perstima) Bhd with a “fully valued” recommendation and a TP of RM4. We expect the intense competition arising from China’s exports of tinplate to Malaysia to weigh on its near-term earnings outlook. We also believe that overseas contributions are not likely to make up for the earnings shortfall in the Malaysian market, given that the latter contributes more than 60% of the group’s revenue.

We are the sole broker covering Perstima. We are adopting a conservative stance on the stock in view of its cloudy earnings prospects.

Potential catalysts are a weaker-than-expected recovery in earnings due to intensified competition from China’s exports of tinplate to Malaysia and lower-than-expected contributions from the overseas markets. Also, the non-extension of anti-dumping duties for imported tinplate could deter Perstima from having more pricing power over its products.

Our fair value for the group stands at RM4, pegged at 12 times calendar year 2018 price-earnings ratio (PER).

Our target PER valuation is based on its average historical PER and similar to the average PER of the FBM Small Cap Index. Meanwhile, key risks to our view include a stronger-than-expected recovery in earnings due to a strengthening profit margin and higher-than-expected contributions from the overseas markets. — AllianceDBS Research, Nov 1