FY18 net profit of RM107m (+59% YoY) missed our/consensus expectations by 11%/16% from full-year net profit forecasts. Separately, a 1-for-1 bonus was proposed. We are cautious on SUPERMX’s production schedule punctuality given past protracted delays. We cut out FY19E/FY20E earnings by 5% each due to the weaker-thanexpected results. Maintain UP. TP is raised from RM2.20 to RM2.60 based on 15x FY19E EPS.
FY18 net profit of RM107m (+59% YoY) missed our/consensus expectations by 11%/16% from full-year net profit forecasts. We believe the variance from our forecast is due to higher-than-expected cost of which we are unable to ascertain as it was not explained in the quarterly results’ note. An interim DPS of 2.0 sen was declared, which brought FY18 DPS to 8.0 sen which is above our expectation.
Key result highlights. QoQ, 4Q18 revenue was flat (+0.7%) due to higher volume sales, but this was more than offset by lower ASPs. There was no guidance in terms of actual volume sales and ASPs growth in their results commentary. However, 4Q18 PBT fell steeper by 48% as PBT margin was crimped by 6.8ppt to 7.1% from 13.9% in 3Q18 which we believe was due to higher-than-expected cost. This brings 4Q18 PATAMI to RM9.8m (-70%) hit by the higher effective tax rate of 51% compared to 25% in 3Q18.
YoY, FY18 PATAMI of RM107m (+59% YoY) was due to stronger revenue (+16%) underpinned by higher output achieved from refurbishment work, higher demand and better operational efficiencies. Profitability improved on efforts taken to improve efficiency and productivity, including the refurbishment of the older lines and streamlining of work processes. As a result, FY8 PBT margin was higher by 3.2ppt to 12.8% from 9.6% in FY17.
Outlook. Following the completion of Plant 10 (2.2b pieces) and Plant 11 (3.4b pieces) in end 2017, the group’s installed capacity rose 30% to 23b pieces from 17.8b which is expected to drive growth in FY19. The group is undertaking a strategy, focusing on rebuilding and replacing of old factories with new high efficiency production lines with speed up to 38-40k (vs 18k per line per hour) pieces of gloves per hour per line. The capacity plans are; (i) decommissioning of old lines in Block G (Kamunting, Taiping) and replacing them with new ones (expected to increase from 1.02b to 1.35b pieces per annum), (ii) convert the unused warehouse in Block F (Kamunting, Taiping) (new capacity of 2b pieces), iii) decommissioning old lines at Sungai Buloh plant from 12 to 20 lines (capacity increasing 97% to 2.4b pieces), and (iv) to build Plant 12 behind the existing factory in Meru Klang, i.e. Plant 10 and Plant 11. Upon full commercial production in stages from 3Q 2018 till end 2H 2019, installed capacity will rise 16% to 27.2b pieces per annum.
Downgrade FY19E/FY20E net profit. We cut out FY19E/FY20E earnings by 5% each due to the weaker-than-expected results.
Reiterate UNDERPERFORM. All in, following our cut in earnings forecast and attaching a higher PER (from 12x to 15x), our TP is raised from RM2.20 to RM2.60 based on 15x FY19E EPS. (at +1.0 SD above its historical forward average). The group is traded at a steep discount of 30% compared to the sector average due to its weak earnings guidance and it trailing behind peers in terms of capacity expansion and innovation.
Key upside risks to our call are faster-than-expected volume sales and lower-than-expected tax rate.
Source: Kenanga Research - 30 Aug 2018