KL Trader Investment Research Articles

Author: kltrader   |   Latest post: Mon, 13 Jul 2020, 10:12 PM


Salutica Berhad - 3Q20 Slip Back to Red While Covid-19 Dampens Outlook, Hold With Lower TP

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3Q20 slip back to red, lower profit margin coupled with higher R&D expenses

3Q20 results disappoint, posted revenue of RM36.3m (yoy:+87.3%, qoq:-34.0%) higher compare to same quarter last year but lower compare to previous quarter while loss widen with loss before tax of RM7.2m compare to PBT of RM0.1m in previous quarter. 9 months cumulative revenue accounted for 62.7% of our full year estimate while loss widen to RM5.9m against our earnings estimate of RM2.4mil.

Operation affected by MCO, outlook dampens by Covid-19

The Group production output affected by initial phase which resulted in more than 50% loss of production in the month of March 2020 although received approval to operate at full capacity since 29 Apr 2020, earnings further dragged down by increase in minimum wage in Feb 2020 and weaker profit margin from change in sales mix of different product.

No dividend declared, expect dividend cut as FCF weakens

No dividend declared for the current quarter, expect dividend cut to strengthen its cash position as FCF weakens.

Upgrade to Hold recommendation with lower TP of RM0.48

We maintain our FY21F estimate considering new products to be launched this year. In line with global stock rout, Salutica shares has fall substantially to reflect the challenging outlook thus we upgrade our recommendation to Hold with lower target price of RM0.48 based on P/E of 10.0x on our estimated EPS for FY21F.

Source: Mercury Research - 20 May 2020

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