As prospects of a global economic slowdown in 2012 loom large, JobStreet is facing concerns that its earnings could be impacted from weaker business sentiment and a soft job market.
JobStreet’s online advertising site, JobStreet.com, has over 1.9 million registered jobseekers in Malaysia alone.
Malaysia is JobStreet’s main geographical segment, contributing over 60% of the group’s earnings and turnover. It also has presence in Singapore, the Philippines, Indonesia and is in the process of developing a presence in Thailand, India and Japan.
For 2QFY11ended June 30, JobStreet’s net profit rose 20.14% to RM13.35 million from RM11.11 million a year ago driven by higher sales from higher recruitment activities.
Pre-tax profit grew 12.51% to RM17.7 million from RM15.73 million a year ago on the back of 21.8% revenue growth to RM36.22 million from RM29.74 million a year ago.
During the quarter, JobStreet’s operating expenses increased by 26.4% due to higher staff costs and marketing expenses, the group said in the notes to its financial results.
Earnings per share was 4.2 sen and net assets per share was 59 sen as at June 30.
Quarter-on-quarter, JobStreet’s net profit climbed 18.26% to RM13.35 million from RM11.29 million while revenue grew 7.73% to RM36.22 million from RM33.62 million in the preceding quarter.
For the six-month period, JobStreet’s net profit grew 24.64% to RM24.64 million from RM19.8 million while revenue increased 21.76% to RM69.85 million from RM57.36 million a year ago.
JobStreet’s earnings in the next two years could face downside risks.
As at June 30, 2011, the company had net cash and equivalents of RM83.06 million, which translates into 25.5 sen per share. That accounted for 43% of its net assets per share of 59 sen.
Malaysia, JobStreet’s core market, currently appears less vulnerable to external turbulence as it is supported by the government’s Economic Transformation Programme (ETP), which aims to create 3.3 million new jobs by 2020.
Still, macro-economic challenges exist, and JobStreet is also facing higher competition and lower pricing for job postings from its main regional competitor, Hong Kong-based JobsDB Inc, which operates online recruitment websites in Southeast Asia, Australia and China.
JobStreet’s single largest shareholder is Australia-based recruitment website SEEK Ltd, which held a 22.3% stake as at May 9, 2011.SEEK’s 69%-owned subsidiary, SEEKAsia Ltd, however, also holds an 80% stake in JobsDB. In July 2011, SEEKAsia increased its shareholding in JobsDB to 80% from the 60% block it acquired in December 2010.
JobStreet will continue to compete with JobsDB by leveraging its competitive advantage in Southeast Asia, ensuring quality customer service and keeping costs low.
Thursday, 3 November 2011
Wednesday, 2 November 2011
IPO ... Parkson Holdings/Parkson Retail Asia
Parkson Holdings Bhd has priced its regional retail arm Parkson Retail Asia Pte Ltd (PRA) at an IPO price of S$0.94 (RM2.33) per share.
The IPO valued the whole of PRA at S$636.7 million, which is 18.2 times its net profit of S$35 million for FY11 ended June 30. However, the size of the IPO that will comprise the issuance of 80 million new shares is smaller than previously anticipated.
PRA’s listing on the Singapore Exchange (SGX) will involve an offering of 147 million shares — 80 million new shares to be issued by PRA and 67 million existing shares by the vendors Parkson Holdings and its Indonesian partner PT Mitra Samaya.
PRA would issue new shares representing up to 18.9% of the company’s enlarged capital. But now with only 80 million new shares to be issued, this works out to only 11.8% of PRA’s enlarged capital of 677.3 million shares. PRA’s shares base before IPO was 597.3 million.
PRA — 90.1% owned by Parkson Holdings and 9.9% by Mitra before the IPO — is a department store operator with operations in Malaysia, Vietnam and Indonesia.
136.15 million or 92.6% of the PRA IPO shares will be offered by way of an international placement to investors, which includes institutional and other investors in Singapore. The remaining 10.85 million shares, excluding up to 3.5 million shares reserved for the directors, management and employees of the Parkson Asia group, will be offered to the public.
Parkson Holdings said the IPO is expected to raise total gross proceeds of S$138.2 million. Based on the 80:67 ratio of the new shares and offer for sale shares, S$75.2 million of the total proceeds will go towards PRA for business expansion with the rest going to Parkson Holdings and Mitra.
PRA proposes to utilise a total of S$69.2 million in net proceeds to open new stores in Malaysia, Indonesia, Vietnam and Cambodia (S$60 million), information technology investment (S$5 million), and part of maintenance capital expenditure in Malaysia, Vietnam and Indonesia (S$4.2 million).
Parkson Holdings, which stand to receive S$56.7 million from the IPO proceeds, has yet to announce how it would utilise the money. The company would inform shareholders at a latter date.
PRA posted a S$35 million net profit in the 12 months through June, up from S$22.4 million a year earlier.
The IPO valued the whole of PRA at S$636.7 million, which is 18.2 times its net profit of S$35 million for FY11 ended June 30. However, the size of the IPO that will comprise the issuance of 80 million new shares is smaller than previously anticipated.
PRA’s listing on the Singapore Exchange (SGX) will involve an offering of 147 million shares — 80 million new shares to be issued by PRA and 67 million existing shares by the vendors Parkson Holdings and its Indonesian partner PT Mitra Samaya.
PRA would issue new shares representing up to 18.9% of the company’s enlarged capital. But now with only 80 million new shares to be issued, this works out to only 11.8% of PRA’s enlarged capital of 677.3 million shares. PRA’s shares base before IPO was 597.3 million.
PRA — 90.1% owned by Parkson Holdings and 9.9% by Mitra before the IPO — is a department store operator with operations in Malaysia, Vietnam and Indonesia.
136.15 million or 92.6% of the PRA IPO shares will be offered by way of an international placement to investors, which includes institutional and other investors in Singapore. The remaining 10.85 million shares, excluding up to 3.5 million shares reserved for the directors, management and employees of the Parkson Asia group, will be offered to the public.
Parkson Holdings said the IPO is expected to raise total gross proceeds of S$138.2 million. Based on the 80:67 ratio of the new shares and offer for sale shares, S$75.2 million of the total proceeds will go towards PRA for business expansion with the rest going to Parkson Holdings and Mitra.
PRA proposes to utilise a total of S$69.2 million in net proceeds to open new stores in Malaysia, Indonesia, Vietnam and Cambodia (S$60 million), information technology investment (S$5 million), and part of maintenance capital expenditure in Malaysia, Vietnam and Indonesia (S$4.2 million).
Parkson Holdings, which stand to receive S$56.7 million from the IPO proceeds, has yet to announce how it would utilise the money. The company would inform shareholders at a latter date.
PRA posted a S$35 million net profit in the 12 months through June, up from S$22.4 million a year earlier.
Tuesday, 1 November 2011
Asia Media ... Nov11
TA Securities Research.
Results Review
- Asia Media Group Berhad announced its 3QFY11 results of RM3.401mn, which although represents a
sequential decline of 18.8% but grew a superb 63% YoY. Cumulatively, its 9MFY11 earnings came in inline
at 74% of our full year’s forecast.
- The sale of airtime decreased slightly in 3Q but revenue from the programme sponsorship and creative
production increased 95% and 25% YoY.
- Overall earnings margin in 3Q registered a YoY expansion of 7.8% to 40.4%.
Impact
- No impact to our earnings forecasts.
Outlook
- The group plans to launch a terrestrial digital TVstation by as early as the first quarter of next year.
- It is planning to recruit as many as 100 people ‐ (newscasters, talk show hosts, and technical support
people) and plan to rent a studio in Damansara for the live TV version.
- The group is still on track in its plan to submit its listing application to Bursa Malaysia for its migration
to the Main Board.
Valuation
- We maintain our target price at RM0.32/share using an FY12 target PER of only 4x.
- Maintain Buy on the stock, TP: RM0.32
Results Review
- Asia Media Group Berhad announced its 3QFY11 results of RM3.401mn, which although represents a
sequential decline of 18.8% but grew a superb 63% YoY. Cumulatively, its 9MFY11 earnings came in inline
at 74% of our full year’s forecast.
- The sale of airtime decreased slightly in 3Q but revenue from the programme sponsorship and creative
production increased 95% and 25% YoY.
- Overall earnings margin in 3Q registered a YoY expansion of 7.8% to 40.4%.
Impact
- No impact to our earnings forecasts.
Outlook
- The group plans to launch a terrestrial digital TVstation by as early as the first quarter of next year.
- It is planning to recruit as many as 100 people ‐ (newscasters, talk show hosts, and technical support
people) and plan to rent a studio in Damansara for the live TV version.
- The group is still on track in its plan to submit its listing application to Bursa Malaysia for its migration
to the Main Board.
Valuation
- We maintain our target price at RM0.32/share using an FY12 target PER of only 4x.
- Maintain Buy on the stock, TP: RM0.32
Monday, 31 October 2011
Supermx ... Oct11
CIMB Research.
Getting the bounce back in its step
Lower costs should provide some bounce to Supermax’s earnings, which have already hit trough. We are upgrading the stock as its established brand and own distribution network will help it ride out the next 1-3 years of excess capacity better than its peers.
At 72% of our FY11 forecast, 9M11 core net profit was in line with our expectations as well as that of the market. We fine-tune our EPS for a lower dividend payout. Our target price (9.8x forward P/E) rises as we
roll forward to end-2013.
Higher sales and margins
9M11 revenue increased 8.7% yoy to RM750.7m due to a full-quarter contribution from new lines commissioned in the final two weeks of 2Q. Another factor was the 9% pt rise in 3Q utilisation to 80% as
Supermax overcame a labour shortage in 2Q by hiring replacements.
Earnings were also given a boost by lower input costs. At RM8.63/kg, average natural rubber (NR) latex price was 11% lower in 3Q than 2Q. Average nitrile costs rose by 12% qoq to RM6.43/kg in 3Q. Even so,
because 65% of the gloves that Supermax sells are made of NR, 3Q
EBITDA margins increased by 6.6% qoq to 17.1%. The better operating performance was enough to offset a 4% pt qoq increase in Supermax’s effective tax rate, leading to a 16.0% qoq rise in 3Q core net profit.
Lower NR latex prices We agree with Supermax’s view that earnings will improve in the quarters ahead as NR latex prices stabilise. Supermax expects NR latex prices to fall to RM7/kg by end-2011 (current:
RM7.96/kg) due to more latex supply from maturing plantations in Cambodia and Vietnam.
Reiterating guidance
Supermax is confident of achieving an FY11 net profit of RM100-120m, as guided in late Aug 2011. The company is actively adjusting ASPs to mitigate the impact of volatile raw material prices and exchange rates.
Expanding its capacity
Supermax is at an advanced stage of expanding its surgical glove capacity from 2.5m pairs per month to 28m pairs per month. The facility is expected to be completed by the end of 2011. The company indicated that the new capacity will add US$67.2m in revenue (implied ASP: US$0.2/pair) and US$10.1m in net profit to the group in FY12.
Over the next two years, Supermax intends to build two additional plants in Meru, Klang where it has 10 acres of land adjacent to its existing facilities. By building on an existing site, it will have no problem accessing gas. The two plants will add a total of 3.9bn gloves p.a. to the group’s capacity by the end of FY13. The company is also upgrading old lines to improve efficiency.
Stable costs will boost earnings
We believe that less volatile NR latex prices will lead to an earnings re-rating as a result of a) better margins and b) higher demand. Stable costs will enable Supermax to pass on a higher portion of its costs to customers, clawing back lost profits when raw material costs were on the uptrend. Currently, Supermax is
passing on 75% of the cost increase, higher than the 70% passed on in the 2Q. In normal conditions, Supermax is able to pass on 90% of the cost increase.
Also, we believe that less volatile raw material costs will entice distributors to restock their inventories. We gather that inventories are at an all-time low of 1-2 months due to the recent wild swings in rubber prices. This has prompted distributors to hold back their purchases and wait for NR prices to stabilise.
With NR latex prices stabilising at around the RM8/kg level, we believe that distributors will be more comfortable about taking aggressive inventory positions.
Defensive business model and strategy
With its own distribution network, established brand and focus on the dental market, we believe Supermax will ride out the next 1-3 years of excess capacity better than its peers. By owning the network and brand, Supermax controls both the manufacturing and distribution portions of the value chain. Unlike Top Glove which is integrating vertically upwards by buying rubber plantation land, Supermax is investing downstream to enhance its marketing and distribution capabilities.
We are in favour of this strategy as it enables Supermax to bypass distributors and sell directly to the end-user. This means that unlike its larger rival, Supermax does not have to dance to the tune of distributors who may not have the customer’s long-term interests in mind. Note that Supermax sells nearly 70% of the gloves under its own brand, which can add up to 5% pts to the company’s profit margins.
Focused strategy shields Supermax from competition
Supermax will also be less affected by the industry’s overcapacity because of its focus on the US dental market where it has a 9.2% market share and is the 2nd largest player. This puts its ahead of its peers for several reasons a) Supermax has built a dominant position and reputation in this market, giving it first-mover advantage, b) when the company switches customers from NR to nitrile, Supermax will not cannibalise its own products and c) by focusing on a sub-segment of the examination glove industry, Supermax faces less competition by serving a niche market.
Cheaper entry than Top Glove
We believe Supermax provides a cheaper entry into the glove sector than Top Glove. The stock trades at just 8.6x FY12 P/E or more than half of Top Glove’s forward P/E of 19.0x. We do not believe that Top Glove’s premium is justified given the company’s lower ROEs and earnings growth (Figure 1). Supermax is also just as liquid as Top Glove, as both stocks have an average daily turnover of about US$1m and a free float of c.50%.
EPS tweaked for lower dividend payout
While earnings met our expectations, dividends did not. Supermax declared a 3 sen dividend, which was lower than our 5 sen expectation. It also indicated that a 3 sen final dividend is likely, which is again below our 6 sen expectation. We now lower our FY11 DPS forecast from 11 sen to 6 sen. Also adjusted is our FY12-13 dividend payout from 30% to 20% (% of net profit), as guided by Supermax. This leads to a 0.22-1% increase in our FY11-13 EPS forecasts due to a higher earnings retention ratio.
Getting the bounce back in its step
Lower costs should provide some bounce to Supermax’s earnings, which have already hit trough. We are upgrading the stock as its established brand and own distribution network will help it ride out the next 1-3 years of excess capacity better than its peers.
At 72% of our FY11 forecast, 9M11 core net profit was in line with our expectations as well as that of the market. We fine-tune our EPS for a lower dividend payout. Our target price (9.8x forward P/E) rises as we
roll forward to end-2013.
Higher sales and margins
9M11 revenue increased 8.7% yoy to RM750.7m due to a full-quarter contribution from new lines commissioned in the final two weeks of 2Q. Another factor was the 9% pt rise in 3Q utilisation to 80% as
Supermax overcame a labour shortage in 2Q by hiring replacements.
Earnings were also given a boost by lower input costs. At RM8.63/kg, average natural rubber (NR) latex price was 11% lower in 3Q than 2Q. Average nitrile costs rose by 12% qoq to RM6.43/kg in 3Q. Even so,
because 65% of the gloves that Supermax sells are made of NR, 3Q
EBITDA margins increased by 6.6% qoq to 17.1%. The better operating performance was enough to offset a 4% pt qoq increase in Supermax’s effective tax rate, leading to a 16.0% qoq rise in 3Q core net profit.
Lower NR latex prices We agree with Supermax’s view that earnings will improve in the quarters ahead as NR latex prices stabilise. Supermax expects NR latex prices to fall to RM7/kg by end-2011 (current:
RM7.96/kg) due to more latex supply from maturing plantations in Cambodia and Vietnam.
Reiterating guidance
Supermax is confident of achieving an FY11 net profit of RM100-120m, as guided in late Aug 2011. The company is actively adjusting ASPs to mitigate the impact of volatile raw material prices and exchange rates.
Expanding its capacity
Supermax is at an advanced stage of expanding its surgical glove capacity from 2.5m pairs per month to 28m pairs per month. The facility is expected to be completed by the end of 2011. The company indicated that the new capacity will add US$67.2m in revenue (implied ASP: US$0.2/pair) and US$10.1m in net profit to the group in FY12.
Over the next two years, Supermax intends to build two additional plants in Meru, Klang where it has 10 acres of land adjacent to its existing facilities. By building on an existing site, it will have no problem accessing gas. The two plants will add a total of 3.9bn gloves p.a. to the group’s capacity by the end of FY13. The company is also upgrading old lines to improve efficiency.
Stable costs will boost earnings
We believe that less volatile NR latex prices will lead to an earnings re-rating as a result of a) better margins and b) higher demand. Stable costs will enable Supermax to pass on a higher portion of its costs to customers, clawing back lost profits when raw material costs were on the uptrend. Currently, Supermax is
passing on 75% of the cost increase, higher than the 70% passed on in the 2Q. In normal conditions, Supermax is able to pass on 90% of the cost increase.
Also, we believe that less volatile raw material costs will entice distributors to restock their inventories. We gather that inventories are at an all-time low of 1-2 months due to the recent wild swings in rubber prices. This has prompted distributors to hold back their purchases and wait for NR prices to stabilise.
With NR latex prices stabilising at around the RM8/kg level, we believe that distributors will be more comfortable about taking aggressive inventory positions.
Defensive business model and strategy
With its own distribution network, established brand and focus on the dental market, we believe Supermax will ride out the next 1-3 years of excess capacity better than its peers. By owning the network and brand, Supermax controls both the manufacturing and distribution portions of the value chain. Unlike Top Glove which is integrating vertically upwards by buying rubber plantation land, Supermax is investing downstream to enhance its marketing and distribution capabilities.
We are in favour of this strategy as it enables Supermax to bypass distributors and sell directly to the end-user. This means that unlike its larger rival, Supermax does not have to dance to the tune of distributors who may not have the customer’s long-term interests in mind. Note that Supermax sells nearly 70% of the gloves under its own brand, which can add up to 5% pts to the company’s profit margins.
Focused strategy shields Supermax from competition
Supermax will also be less affected by the industry’s overcapacity because of its focus on the US dental market where it has a 9.2% market share and is the 2nd largest player. This puts its ahead of its peers for several reasons a) Supermax has built a dominant position and reputation in this market, giving it first-mover advantage, b) when the company switches customers from NR to nitrile, Supermax will not cannibalise its own products and c) by focusing on a sub-segment of the examination glove industry, Supermax faces less competition by serving a niche market.
Cheaper entry than Top Glove
We believe Supermax provides a cheaper entry into the glove sector than Top Glove. The stock trades at just 8.6x FY12 P/E or more than half of Top Glove’s forward P/E of 19.0x. We do not believe that Top Glove’s premium is justified given the company’s lower ROEs and earnings growth (Figure 1). Supermax is also just as liquid as Top Glove, as both stocks have an average daily turnover of about US$1m and a free float of c.50%.
EPS tweaked for lower dividend payout
While earnings met our expectations, dividends did not. Supermax declared a 3 sen dividend, which was lower than our 5 sen expectation. It also indicated that a 3 sen final dividend is likely, which is again below our 6 sen expectation. We now lower our FY11 DPS forecast from 11 sen to 6 sen. Also adjusted is our FY12-13 dividend payout from 30% to 20% (% of net profit), as guided by Supermax. This leads to a 0.22-1% increase in our FY11-13 EPS forecasts due to a higher earnings retention ratio.
Friday, 28 October 2011
Pantech ... Oct11
By InsiderAsia.
- Sales in 2QFYFeb12 up 5.5% q-q and 3.5% y-y
- Demand gradually gaining momentum
- To resume double-digit growth in FY12-FY15
- Very attractive FY12E P/E of 5.7x with 7.4% net yield
Pantech Group Holdings’ earnings results for 2QFYFeb2012 were broadly in line with our expectations.
Turnover improved to RM100.6 million, up 3.5% from the previous corresponding quarter and up 5.5% q-q. Trading sales accounted for roughly 60% of total turnover while the manufacturing arm contributed to the balance.
The recovery in domestic demand, which accounts for the bulk of the company’s trading sales, is still sluggish – although off the lows. As a result, margins from the trading arm are still at the lower end of its historical range.
Positively, we expect demand – and profitability – to gradually pick up steam over the next few quarters on the back of rollout of oil & gas projects under the various government initiatives, including the Economic Transformation Programme.
The manufacturing arm, on the other hand, is doing comparatively better on the back of the strong recovery in overseas markets. Sales continued to trend higher, to RM40.6 million in 2QFY12, up from RM30.2 million in
1QFY12 and RM25 million in 2QFY11.
The carbon steel manufacturing facility in Klang is operating at full capacity. Operations at the new stainless steel manufacturing plant in Johor Baru are also progressing well. All six initial production lines are up and running at almost full capacity. The lines broke even at end-2QFY12 – and should start to contribute positively in 2HFY12.
Lower losses from the new manufacturing plant more than offset the slight contraction in trading earnings before interest and tax (EBIT). EBIT for the manufacturing arm improved to about RM3.4 million in 2QFY12, up from RM1.3 million in the immediate preceding quarter.
As a result, net profit improved to RM7.2 million in the latest quarter, up from RM6.2 million in 1QFY12.
Earnings Outlook
Pantech is upbeat on the outlook going forward and that its expansion plans are progressing on track.
The recovery in demand for the company’s pipes, fittings and flow control (PFF) products is expected to gain traction, both in the domestic and export markets. Despite prevailing uncertainties over the global economic outlook, the company is maintaining its cautious optimism.
Global economic growth is still positive, albeit revised lower from previously forecasted numbers. Prices for crude oil have held up well through the volatility in financial markets. Crude oil futures on the New York Mercantile Exchange are currently hovering around US$88 per barrel, a level that is supportive of
exploration and production activities in the oil & gas sector.
Meanwhile, even though prices for crude palm oil (CPO) have weakened, demand is still expected to remain fairly resilient. CPO futures on the Bursa Derivatives market are currently trading around RM2,900 per tonne – well above the average production costs for plantation companies and thus, should continue to drive acreage expansion plans underpinned by expectations of rising demand.
The oil & gas and oil palm related sectors collectively account for the bulk of Pantech’s sales for pipes, fittings and flow control products. As mentioned above, the recovery in domestic demand is still somewhat
sluggish. Nevertheless, capital spending in the domestic oil & gas sector is expected to be quite robust for the foreseeable future.
The Malaysian government has pinpointed the sector as one of the key focus areas under its Economic Transformation Programme, accounting for a substantial share of the total value of the projects that have been announced so far.
The national oil company, Petroliam Nasional intends to spend some RM250 billion over the next five years, to develop new projects, including marginal oil fields, as well as undertake enhanced oil recovery from existing oil fields.
Elsewhere, private sector projects such as the Dialog Group’s Pengerang deepwater petroleum terminal are also expected to spur greater investment in the oil & gas related sectors in the country going forward.
The gradual rollout of these projects will translate into greater demand for downstream support services, including demand for Pantech’s PFF products.
Pantech’s manufacturing arm has recovered quite smartly from the slump in overseas demand in the aftermath of the global financial crisis. Sales hit a trough in 2QFY10 and have been trending higher since – despite the
strengthening of the ringgit. The weaker US dollar translates into lower sales for the company in ringgit terms.
The company’s carbon steel PFF manufacturing facility in Klang is effectively running at full capacity. To cater to the expected demand growth, a factory is being built on a piece of land adjacent to its existing plant. The additional machineries to manufacture, primarily, high frequency induction long bends, are slated to commission by end-2011. The factory will also house a heat treatment facility.
Meanwhile, Pantech is in the midst of adding machineries for another four lines at its new stainless steel facility. The additional lines will expand its current production range to include bigger-sized pipes and also fittings.
If all goes to plan, rated production capacity at this plant will rise to 13,500 metric tonnes per annum by early 2012, from the current 7,000 metric tonnes, and will be reflected in the company’s FY13 earnings. Total capex is estimated at roughly RM40 million and RM50 million for FY12-FY13, respectively.
The manufacturing arm has already secured a full order book for the rest of the current financial year. Plus, we expect margins to gradually widen – the initial six lines have broken even while the new lines should start to
contribute positively by 2HFY13. They will also enjoy better economies of scale.
Looking further ahead into 2013, Pantech is actively exploring various options to further expand its range to encompass higher value and margin alloy products such as copper-nickel, duplex and super duplex pipes and
fittings that are corrosion resistant.
The move would expand its customer base and market reach – and is the final piece in Pantech’s five-year plan to hit sales target of RM1 billion by FY15. The company expects manufacturing sales to account for at least 40% of total sales. Domestic demand will also account for a higher percentage of manufacturing sales, currently derived mainly from exports, as a result of import substitution.
Valuation and Recommendation
Pantech’s well-laid out strategy should enable it to achieve double-digit annual growth over the next few years – based on the expected strengthening in demand that is supported by the company’s expansion plans.
Net profit is rising, albeit still at a gradual pace. This is due to pricing competition as there is currently excess capacity in the industry with demand just starting to pick up pace. Margins were also weighed down by start up costs at the company’s new stainless steel plant.
We believe that Pantech’s earnings will be much stronger in 2HFY12 compared to the first half of its financial year. Thus, we are keeping our forecast unchanged.
Net profit is estimated at RM37.7 million in FY12 – up 30% from the RM29.4 million in FY11 – and is expected to grow further to RM46 million by FY13. Based on our forecast, the stock is trading at very modest P/E valuations of only 5.7 and 4.6 times, respectively, for the two years. Plus, the stock is
trading below its net asset of 72 sen per share as at end-Aug 2011.
Pantech’s valuations compare very favorably against most oil & gas stocks listed on the local bourse, as well as the broader market’s average valuations.
Thus, we believe there is significant upside potential for Pantech, particularly for those with a slightly longer investment horizon. We maintain our BUY recommendation on the stock.
Investors can also expect attractive yields
On top of potential capital gains, shareholders can also look forward to attractive yields.
Dividends totaled 3.3 sen per share in FY11. With stronger earnings going forward, we believe Pantech will gradually raise its dividends. We estimate dividends will rise to 3.5 sen per share in FY12, which will earn shareholders an attractive net yield of 7.4% at the current share price. This is well above the average yield for the broader market as well as prevailing interest rates on bank deposits.
Warrants and ICULS for lower entry price points
For lower entry price points, investors could consider the company’s ICULS and warrants.
Pantech has some 735 million outstanding ICULS, carrying a 7% coupon rate with a conversion ratio of six to one, exercisable at anytime up to December 2017. Based on the current share price of 47.5 sen, the ICULS,
Pantech-LA, would be “in the money” at roughly 7.92 sen. They last traded at 9.5 sen.
The company also has some 74.8 million outstanding warrants, Pantech-WA. The warrants have a longer maturity period, up to December 2020, and exercise price of 60 sen. The warrants are now trading at 21.5 sen, implying a 72% premium.
Upon full conversion of the ICULS and warrants, Pantech’s share base will be enlarged to some 650 million shares from 452.6 million at present. The larger share capital – in step with its growing business – would improve liquidity and increase the stock’s attractiveness to investors over time.
- Sales in 2QFYFeb12 up 5.5% q-q and 3.5% y-y
- Demand gradually gaining momentum
- To resume double-digit growth in FY12-FY15
- Very attractive FY12E P/E of 5.7x with 7.4% net yield
Pantech Group Holdings’ earnings results for 2QFYFeb2012 were broadly in line with our expectations.
Turnover improved to RM100.6 million, up 3.5% from the previous corresponding quarter and up 5.5% q-q. Trading sales accounted for roughly 60% of total turnover while the manufacturing arm contributed to the balance.
The recovery in domestic demand, which accounts for the bulk of the company’s trading sales, is still sluggish – although off the lows. As a result, margins from the trading arm are still at the lower end of its historical range.
Positively, we expect demand – and profitability – to gradually pick up steam over the next few quarters on the back of rollout of oil & gas projects under the various government initiatives, including the Economic Transformation Programme.
The manufacturing arm, on the other hand, is doing comparatively better on the back of the strong recovery in overseas markets. Sales continued to trend higher, to RM40.6 million in 2QFY12, up from RM30.2 million in
1QFY12 and RM25 million in 2QFY11.
The carbon steel manufacturing facility in Klang is operating at full capacity. Operations at the new stainless steel manufacturing plant in Johor Baru are also progressing well. All six initial production lines are up and running at almost full capacity. The lines broke even at end-2QFY12 – and should start to contribute positively in 2HFY12.
Lower losses from the new manufacturing plant more than offset the slight contraction in trading earnings before interest and tax (EBIT). EBIT for the manufacturing arm improved to about RM3.4 million in 2QFY12, up from RM1.3 million in the immediate preceding quarter.
As a result, net profit improved to RM7.2 million in the latest quarter, up from RM6.2 million in 1QFY12.
Earnings Outlook
Pantech is upbeat on the outlook going forward and that its expansion plans are progressing on track.
The recovery in demand for the company’s pipes, fittings and flow control (PFF) products is expected to gain traction, both in the domestic and export markets. Despite prevailing uncertainties over the global economic outlook, the company is maintaining its cautious optimism.
Global economic growth is still positive, albeit revised lower from previously forecasted numbers. Prices for crude oil have held up well through the volatility in financial markets. Crude oil futures on the New York Mercantile Exchange are currently hovering around US$88 per barrel, a level that is supportive of
exploration and production activities in the oil & gas sector.
Meanwhile, even though prices for crude palm oil (CPO) have weakened, demand is still expected to remain fairly resilient. CPO futures on the Bursa Derivatives market are currently trading around RM2,900 per tonne – well above the average production costs for plantation companies and thus, should continue to drive acreage expansion plans underpinned by expectations of rising demand.
The oil & gas and oil palm related sectors collectively account for the bulk of Pantech’s sales for pipes, fittings and flow control products. As mentioned above, the recovery in domestic demand is still somewhat
sluggish. Nevertheless, capital spending in the domestic oil & gas sector is expected to be quite robust for the foreseeable future.
The Malaysian government has pinpointed the sector as one of the key focus areas under its Economic Transformation Programme, accounting for a substantial share of the total value of the projects that have been announced so far.
The national oil company, Petroliam Nasional intends to spend some RM250 billion over the next five years, to develop new projects, including marginal oil fields, as well as undertake enhanced oil recovery from existing oil fields.
Elsewhere, private sector projects such as the Dialog Group’s Pengerang deepwater petroleum terminal are also expected to spur greater investment in the oil & gas related sectors in the country going forward.
The gradual rollout of these projects will translate into greater demand for downstream support services, including demand for Pantech’s PFF products.
Pantech’s manufacturing arm has recovered quite smartly from the slump in overseas demand in the aftermath of the global financial crisis. Sales hit a trough in 2QFY10 and have been trending higher since – despite the
strengthening of the ringgit. The weaker US dollar translates into lower sales for the company in ringgit terms.
The company’s carbon steel PFF manufacturing facility in Klang is effectively running at full capacity. To cater to the expected demand growth, a factory is being built on a piece of land adjacent to its existing plant. The additional machineries to manufacture, primarily, high frequency induction long bends, are slated to commission by end-2011. The factory will also house a heat treatment facility.
Meanwhile, Pantech is in the midst of adding machineries for another four lines at its new stainless steel facility. The additional lines will expand its current production range to include bigger-sized pipes and also fittings.
If all goes to plan, rated production capacity at this plant will rise to 13,500 metric tonnes per annum by early 2012, from the current 7,000 metric tonnes, and will be reflected in the company’s FY13 earnings. Total capex is estimated at roughly RM40 million and RM50 million for FY12-FY13, respectively.
The manufacturing arm has already secured a full order book for the rest of the current financial year. Plus, we expect margins to gradually widen – the initial six lines have broken even while the new lines should start to
contribute positively by 2HFY13. They will also enjoy better economies of scale.
Looking further ahead into 2013, Pantech is actively exploring various options to further expand its range to encompass higher value and margin alloy products such as copper-nickel, duplex and super duplex pipes and
fittings that are corrosion resistant.
The move would expand its customer base and market reach – and is the final piece in Pantech’s five-year plan to hit sales target of RM1 billion by FY15. The company expects manufacturing sales to account for at least 40% of total sales. Domestic demand will also account for a higher percentage of manufacturing sales, currently derived mainly from exports, as a result of import substitution.
Valuation and Recommendation
Pantech’s well-laid out strategy should enable it to achieve double-digit annual growth over the next few years – based on the expected strengthening in demand that is supported by the company’s expansion plans.
Net profit is rising, albeit still at a gradual pace. This is due to pricing competition as there is currently excess capacity in the industry with demand just starting to pick up pace. Margins were also weighed down by start up costs at the company’s new stainless steel plant.
We believe that Pantech’s earnings will be much stronger in 2HFY12 compared to the first half of its financial year. Thus, we are keeping our forecast unchanged.
Net profit is estimated at RM37.7 million in FY12 – up 30% from the RM29.4 million in FY11 – and is expected to grow further to RM46 million by FY13. Based on our forecast, the stock is trading at very modest P/E valuations of only 5.7 and 4.6 times, respectively, for the two years. Plus, the stock is
trading below its net asset of 72 sen per share as at end-Aug 2011.
Pantech’s valuations compare very favorably against most oil & gas stocks listed on the local bourse, as well as the broader market’s average valuations.
Thus, we believe there is significant upside potential for Pantech, particularly for those with a slightly longer investment horizon. We maintain our BUY recommendation on the stock.
Investors can also expect attractive yields
On top of potential capital gains, shareholders can also look forward to attractive yields.
Dividends totaled 3.3 sen per share in FY11. With stronger earnings going forward, we believe Pantech will gradually raise its dividends. We estimate dividends will rise to 3.5 sen per share in FY12, which will earn shareholders an attractive net yield of 7.4% at the current share price. This is well above the average yield for the broader market as well as prevailing interest rates on bank deposits.
Warrants and ICULS for lower entry price points
For lower entry price points, investors could consider the company’s ICULS and warrants.
Pantech has some 735 million outstanding ICULS, carrying a 7% coupon rate with a conversion ratio of six to one, exercisable at anytime up to December 2017. Based on the current share price of 47.5 sen, the ICULS,
Pantech-LA, would be “in the money” at roughly 7.92 sen. They last traded at 9.5 sen.
The company also has some 74.8 million outstanding warrants, Pantech-WA. The warrants have a longer maturity period, up to December 2020, and exercise price of 60 sen. The warrants are now trading at 21.5 sen, implying a 72% premium.
Upon full conversion of the ICULS and warrants, Pantech’s share base will be enlarged to some 650 million shares from 452.6 million at present. The larger share capital – in step with its growing business – would improve liquidity and increase the stock’s attractiveness to investors over time.
Wednesday, 26 October 2011
Tuesday, 25 October 2011
Zhulian ... Oct11
ZJ Research.
• Zhulian’s 9MFY11 net profit of RM67.3 mln was in line with our expectations, having reached
74% of our full-year estimate of RM91.3 mln.
• 3QFY11 turnover was 1.0% lower q-o-q but 24.9% higher y-o-y at RM91.8 mln. The flat q-o-q growth in revenue was due to lower contribution from overseas markets, which offset the increase in domestic demand that resulted from the pre-Hari Raya stocking-up activities by its distributors. We understand the Group rolled out several new products during 3Q that include new jewellery collections in conjunction with the Hari Raya festive season, healthcare products as well as smart-seal containers for households.
• 3Q operating profit margin recovered to above 20%-level after falling to 18.2% in the preceding quarter. Recall that operating profit margin in 2QFY11 was affected by both appreciating RM and increase in opex. The improved profit margin in 3QFY11 was attributed to lower opex as there was fewer incentive tour campaigns and seminars held. Meanwhile, PBT was further boosted by a substantial 44.1% q-o-q rise in contribution from its associate. Zhulian credited the improvement at its associated company to higher sales arising from increased marketing activities and incentive tour campaigns to motivate distributors.
• Notwithstanding the uncertainties surrounding the global markets, Zhulian registered a 13.9% and 7.2% y-o-y growth in 9MFY11 revenue and net profit at RM270.7 mln and RM67.3 mln respectively. While 9MFY11 net profit margin did decline by 1.5ppt, it is still healthy at 24.9%. We expect the Group to continue its consistent earnings performance in 4QFY11, supported by planned new product rollouts (i.e. new cosmetic products) and ongoing incentive campaigns.
• Zhulian’s operations remain firmly supported by a strong balance sheet, backed by a NTA/share of 82 sen and net cash/share of 29 sen as at end-August 2011.
• With no surprises in the results, we maintain our current FY11 revenue and net profit estimates of RM354.1 mln and RM91.3 mln respectively. We remain sanguine on Zhulian’s prospects and like its focus on growing market share in the ASEAN region. Domestically, the Group is also likely to benefit from the additional half-month bonus payout for civil servants under the recently tabled Budget 2012 as some of its distributors and customers are civil servants.
• As expected, Zhulian declared a third interim single-tier dividend of 3 sen. We continue to project a full year net dividend of 12 sen per share based on the Group’s 60% dividend payout policy, which translates into an attractive prospective net yield of 6.9%.
Recommendation
We maintain our Buy call on Zhulian with an unchanged fair value of RM2.18, derived from pegging the peer-benchmarked target PER of 11x against our FY11 net profit forecast. We continue to like Zhulian for its i) earnings growth prospects, ii) solid balance sheet, iii) higher-than-peers net profit margin, and iv) undemanding valuation at prospective FY11 PER of 8.7x supported by an attractive net yield of 6.9%. In our opinion, Zhulian offers a cheaper exposure into the MLM business by comparison to market leader, Amway Holdings, which is trading at a forward PER of 16x.
• Zhulian’s 9MFY11 net profit of RM67.3 mln was in line with our expectations, having reached
74% of our full-year estimate of RM91.3 mln.
• 3QFY11 turnover was 1.0% lower q-o-q but 24.9% higher y-o-y at RM91.8 mln. The flat q-o-q growth in revenue was due to lower contribution from overseas markets, which offset the increase in domestic demand that resulted from the pre-Hari Raya stocking-up activities by its distributors. We understand the Group rolled out several new products during 3Q that include new jewellery collections in conjunction with the Hari Raya festive season, healthcare products as well as smart-seal containers for households.
• 3Q operating profit margin recovered to above 20%-level after falling to 18.2% in the preceding quarter. Recall that operating profit margin in 2QFY11 was affected by both appreciating RM and increase in opex. The improved profit margin in 3QFY11 was attributed to lower opex as there was fewer incentive tour campaigns and seminars held. Meanwhile, PBT was further boosted by a substantial 44.1% q-o-q rise in contribution from its associate. Zhulian credited the improvement at its associated company to higher sales arising from increased marketing activities and incentive tour campaigns to motivate distributors.
• Notwithstanding the uncertainties surrounding the global markets, Zhulian registered a 13.9% and 7.2% y-o-y growth in 9MFY11 revenue and net profit at RM270.7 mln and RM67.3 mln respectively. While 9MFY11 net profit margin did decline by 1.5ppt, it is still healthy at 24.9%. We expect the Group to continue its consistent earnings performance in 4QFY11, supported by planned new product rollouts (i.e. new cosmetic products) and ongoing incentive campaigns.
• Zhulian’s operations remain firmly supported by a strong balance sheet, backed by a NTA/share of 82 sen and net cash/share of 29 sen as at end-August 2011.
• With no surprises in the results, we maintain our current FY11 revenue and net profit estimates of RM354.1 mln and RM91.3 mln respectively. We remain sanguine on Zhulian’s prospects and like its focus on growing market share in the ASEAN region. Domestically, the Group is also likely to benefit from the additional half-month bonus payout for civil servants under the recently tabled Budget 2012 as some of its distributors and customers are civil servants.
• As expected, Zhulian declared a third interim single-tier dividend of 3 sen. We continue to project a full year net dividend of 12 sen per share based on the Group’s 60% dividend payout policy, which translates into an attractive prospective net yield of 6.9%.
Recommendation
We maintain our Buy call on Zhulian with an unchanged fair value of RM2.18, derived from pegging the peer-benchmarked target PER of 11x against our FY11 net profit forecast. We continue to like Zhulian for its i) earnings growth prospects, ii) solid balance sheet, iii) higher-than-peers net profit margin, and iv) undemanding valuation at prospective FY11 PER of 8.7x supported by an attractive net yield of 6.9%. In our opinion, Zhulian offers a cheaper exposure into the MLM business by comparison to market leader, Amway Holdings, which is trading at a forward PER of 16x.
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