Results

• 3QFY15 revenue of RM71.4m (-4.3% yoy, -7.3% qoq) was translated into core net profit of RM11.8m (-6.9% yoy, +6.9% qoq). This took 9MFY15 to RM35.0m (+48.2% yoy), accounting for 55.7% and 55.2% of HLIB and consensus full year estimates, respectively.

Deviations

• Lower ASP yoy and qoq as well as utilization rate during the quarter has dragged down the top line.

Dividends

• None.

Highlights

• Top line for the current quarter and cumulative quarter has come down by 4.3% and 1.7% yoy, respectively, mainly due to lower ASP. Also, higher commercial order was received during the current quarter which has led to longer time of production.

• On a positive note, EBITDA margin for 9MFY15 has improved to 26.5% from 21.0%. This is mainly due to management’s effort to foc us on products that yield better margin.

• YTD saw catheters segment contributed 5% to total revenue versus only 3% in FY14. We learnt that this is one of the area management will be focusing going forward as it gives higher margin as compared to condoms and probe covers / lubricating jelly.

• Post-acquisition of Global Protection, contribution from OBM segment has improved to 7% (versus 4% in FY14), while ratio of commercial and tender business stood at 47:46 respectively, which is comfortable for the management.

• During the quarter, utilization rate was slightly lower at 70.9% as more orders were placed on commercial market. However, YTD utilization rate remains healthy at 74.5%. Management also shared that that they have seen the trend of customers placing orders for premium products which generate higher margins.

• Management hinted that cash raised from placement will be used for potential brands and talents acquisitions mainly in the US region.

Risks

• Surge in raw material prices, forex risks, revision on foreign labour policy, successful invention of HIV/AIDS cure, product substitutions for condoms.

Forecasts

• We trimmed our FY15 production capacity from 4.25bn pcs to 4.0bn pcs which results in 6% reduction in our sales volume assumptions.

Rating

HOLD , TP: RM3.09

Positives

• Worl d’s largest condom manufacturer; ever - increasing global condom demand; strong in-house R&D; licensed to export to major part of the world; and successful acquisition of Global Protection Corp.

Negatives

• High dependency on foreign labour and lack of long-term contracts with customers.

Valuation

We maintain our HOLD recommendation but our TP cut to RM3.09 from RM3.26 after we tweak our production volume.

• Our valuation is pegged to unchanged P/E multiple of 23.8x of CY16 EPS, based on 2SD above its international peers.

Source: Hong Leong Investment Bank Research - 29 May 2015