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GW Plastics - OUTPERFORM - 23 May 2012

kiasutrader
Publish date: Wed, 23 May 2012, 02:50 PM
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Period    1Q12

Actual vs.  Expectations
 1Q12 net profit ('NP') of RM5.2m was broadly in line, making up 19% and 20% of the street's estimate and our forecast of RM27.4m and RM25.7m respectively. This is in line with our expectation as 1H is seasonally slow as compared with the 2H of the year.

Dividends   The company declared a first interim single tier dividend of 1.5 sen per share, which is 34% of our FY12 NDPS of 4.0 sen. This NDPS translates into an attractive dividend yield of 6.8%.

Key Result Highlights
 YoY, 1Q12 revenue increased 12% on the back of higher sales registered by the local (+7% YoY) and export sales (+15% YoY). The exports contribution has also improved YoY by 2ppt to
58%.
 NP YoY jumped by 16% despite a higher effective tax rate of 22% (vs. 15% in 1Q11). This was mainly attributable to a gross margin expansion of 40bps (resulting from the lower cost of raw materials) as well as benefiting from an economic of scale (which reduced the operating expenses to sales ratio from 5.7% to 5.1%). 

 1Q12 revenue QoQ declined 7% due mainly to a lower sales volume and a marginally lower selling price.

 Although the NP QoQ dropped 5% (due to a higher tax bracket), the PBT actually increased 1%. The increase was due to a forex gain in the current quarter as compared to a loss in 4Q11.

Outlook   We continue to believe the company will benefit from a lower plastic resin price cycle due to the gradual increase in the supply of new petrochemical capacities. Its timely capacity expansion will also be able to capture the rising demand for both its blown and cast films.

Change to Forecasts
 Maintaining our FY12-13E NP estimates of RM25.7m-RM35.3m.

Rating  MAINTAIN OUTPERFORM

Valuation    We expect the NP to grow by a strong 31% and 37% in FY12 and FY13 respectively. Together with its attractive net dividend yield of 6.8%, the stock offers strong total returns of 41% to our TP of RM0.86, based on the 4-year Industry Average PER of 8.0x over its FY12 EPS of 10.8 sen. 

Risks   The global economic uncertainty could drive a price upswing in oil price, which will in turn hit the company's earnings.    

Source: Kenanga
AVALAND (5182)
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