This article first appeared in The Edge Financial Daily on September 20, 2018
Superlon Holdings Bhd
(Sept 19, RM1.29)
Maintain neutral with a lower target price (TP) of RM1.23: Superlon Holdings Bhd’s results for the first quarter of financial year 2019 (1QFY19) missed forecast as net profit of RM2.85 million made up only 15% of our full-year forecast. Revenue of RM25.72 million was largely within expectations making up 22% of our full year estimates. The variance was attributed to lower-than-expected selling prices, resulting in lower gross profits. An interim dividend of 0.75 sen for FY19 was announced.
Profit for the quarter fell by -19.5% year-on-year (y-o-y) to RM2.85 million while revenue fell by 2.3% y-o-y to RM25.7 million. The lower profit is largely due to competitive pricing that led to lower profitability. Notably, its core earnings before interest and tax (Ebit) margin has been compressed by 3.4 percentage points to 14.4% from 17.8% a year ago.
Sequentially, profit more than doubled as profit margin rebounded. Compared to 4QFY18, the net profit of RM2.85 million is a vast improvement compared to the RM1.38 million quarter-on-quarter (q-o-q). Its core Ebit margin has improved from 4.74% previously to 14.38% while revenue improved marginally by 1.4% from higher manufacturing and trading divisions. The improvement is supported by the favourable exchange rates as well as better operating efficiency.
FY19F/FY20F earnings estimate revised by -22%/-20% as Superlon is unable to fully pass on the increase in raw material prices especially to its price-sensitive customers. As a result, our estimate for FY19F/FY20F net profit is cut to RM15 million/RM18.3 million respectively. We have also cut our dividend per share assumption for both years to 3.5 sen from 5.5sen previously.
Maintain “neutral” with an adjusted TP of RM1.23 (from RM1.58 previously). The lower TP is a result of lower earnings per share (EPS) estimate for FY19. Our valuation method of 13 times price-earnings ratio is unchanged. We are cautious about the heightened competition globally while raw material prices remain elevated. On the flip side, its Vietnam factory is on track for production by end FY19 while it is still sitting on a net cash of RM9.2 million. — MIDF Research, Sept 19