Results

FY13 turnover of RM1.95bn was translated into higher-thanexpected core net profit of RM82.2m, accounting for 118% of HLIB’s full year forecast. Deviations

Gross profit margin held up better than expected.

Dividends

Declared fourth single tier dividend of 6.2 sen per share (4Q12: 4.55 sen) with ex-date of 10th Mar. This elevates YTD DPS to 16.02 sen (FY12: 15.9 sen) per share, representing a payout of 75%.

For FY14, committed to at least sustain FY13’s dividend to be distributed quarterly.

Highlights

4Q13 bucked the traditional trend of being the seasonally weakest quarter with highest registered sales in since FY11. This was mainly due to significant demand in both concession and non-concession businesses, as well as clinching new tenders during the year.

FY13 sales ratio of concession: non-concession: Indonesia business was 57%: 22%: 21% vs FY12’s 59%: 19%: 22%, slow but positive sign of reducing dependency on concession business progressively.

Logistics and distribution division continues to see strong demand for its concession products for FY14 while manufacturing division is expected to register strong healthy growth despite the recent rise in operating costs such as fuel and electricity.

The recent closure of ERRITA deal is expected to contribute positively over the long term as new product registration process in Indonesia would require up to 2 years.

Catalysts

Gaining market share in non-concession and private sectors, synergistic benefits from acquisition, favorable FOREX, continuous effective operational strategy.

Risks

Political / regulatory / competitive / FOREX risks, failure / delay in drug delivery under CA, compliance to production standards / contamination and drug patent disputes.

Forecasts

Tweaked model based on deviations mentioned above and rolled over our model. In turn, FY14 EPS was unchanged but FY15’s was revised down marginally by 3.7%.

Rating

BUY, TP: RM5.19

Positives - Synergy from acquisition, quarterly dividend, secured business outlook thanks to CA.

Negatives - FOREX, high level of stock and gearing.

Valuation

Maintain BUY call on the stock with unchanged fair value of RM5.19 based on higher FY14 P/E multiple of 14.5x.

Source: Hong Leong Investment Bank Research - 25 Feb 2014