This article first appeared in The Edge Financial Daily on December 14, 2018
Superlon Holdings Bhd
(Dec 13, RM1.25)
Upgrade to buy with a higher target price (TP) of RM1.50: Superlon Holdings Bhd’s six months of financial year 2019 (6MFY19) results are within expectation as net profit of RM7.08 million made up 47% of our full-year forecast. An interim dividend of 1.15 sen was announced, bringing year-to-date (YTD) dividend per share to 1.9 sen, which is largely in line with our forecast.
6MFY19 net profit marginally lower by 1.4% year-on-year (y-o-y) to RM7.08 million mainly due to sales that dipped by 7.2% y-o-y. The underwhelming 1QFY19 dragged down its YTD performance.
However, profit for 2QFY19 jumped 16.5% y-o-y to RM4.23 million although revenue slid 18% y-o-y to RM25.05 million. The lower sales recorded can be attributed to lower volume while the improvement in profit for the quarter is mainly due to the favourable foreign exchange rate as well as lower raw material prices. Quarter-on-quarter, net profit soared 48.4% while revenue declined by 2.6%. Gross profit margin has improved to 35.5% from 30.3% in the previous quarter.
Looking ahead, we expect Superlon’s outlook to improve as one of the main raw materials, butadiene, has seen a price drop of about 30% since the beginning of September. Due to the lag effect in supplier pricing, we expect the benefit of lower raw material prices to have a greater positive impact for Superlon in 2HFY19. On top of that, Superlon’s Vietnam plant is on track and is expected to contribute positively to the group in 2HFY19. It has also launched a new product recently which could be another growth driver in FY20.
Upgrade to “buy” from neutral with a higher TP of RM1.50 (from RM1.23 previously) as we roll over our base year to FY20. Our earnings forecast for FY18 forecast (FY18F) and FY19F are unchanged while our valuation method of 13 times price-earnings ratio remains. Catalysts for the stock include lower raw material prices, sales from its new product and higher volume contributed by its Vietnam plant. It is sitting on a net cash of RM6.5 million and dividend yield is estimated at 2.8%. — MIDF Research, Dec 13