We upgrade Salutica from HOLD to BUY with a lower fair value of RM1.45/share (previously RM1.66/share) based on an unchanged FY19F PE of 15x. We believe the recent selldown of Salutica shares — likely attributed to the weaker USD — is overdone.
We are keeping our FY18F net profit forecast as Salutica typically hedges its entire FX exposure 3–9 months ahead. However, we are trimming FY19F–FY20F's by 12% as we revise our USD/MYR assumptions for the period from 4.12 to 3.95.
Salutica's 2QFY18 core net profit came within expectations at RM5.8mil, declining6% QoQ and 45%YoY. This brings 1HFY18 net profit to RM12.0mil (-26% YoY), accounting for 41% of our full-year forecast and 39% of consensus.
Despite a marginal revenue dip (4% YoY), 2QFY18 net profit dropped by a larger quantum owing to higher R&D expenditure and escalated expenses resulted from greater complexity of a new cable-less product. YTD, revenue was up by 5% YoY thanks to higher sales of Bluetooth headsets, but net profit declined for the same reasons.
QoQ, revenue continued to register growth (4.5%) due to sustained interests for its customers' Bluetooth headsets. Moving into 2HFY18, we believe earnings will improve as operating expenses and profit margins normalise.
Moving forward, the company may benefit from: i) accelerated uptake of wireless Bluetooth earphones sparked by the removal of headphone jacks and the availability of near-field communication (NFC)technology; ii) pickup in AirBar orders as consumers upgrade to Windows 8 or 10; iii) replacements of expensive touchscreen solutions (e.g. capacitive) with Neonode's zForce technology; and iv) rising adoption of Salutica's in-house tyre pressure monitoring system (FOBO) to ensure safety of drivers.
Salutica is currently trading at an undemandingCY18F PE of 10x, while SKP Resources and V.S. Industry are trading at 15x and 13x respectively.
New IPO: The onshore and offshore support services provider for the O&G industry, Steel Hawk Bhd aims to list on the Ace Market!
MQ Trader 4406 views | 4 d ago
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New IPO: The largest mini-market player and a leading groceries retailer in Malaysia, 99 Speed Mart Retail Holdings Bhd aims to list on the Main Market!
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newbie911
Buy !!!
2018-02-24 23:24