Period

1Q15 Actual vs. Expectations

1Q15 net profit of RM25m (-6% yoy) came in slightly below expectations at around 18%- 20% of our and consensus full-year forecasts. The negative variance from our forecast was due to lower-than-expected sales volume and margin.

Dividends

No dividend was declared in this quarter. Key Result

Highlights

QoQ, 1Q15 revenue fell by 13% to RM223m, despite higher gloves volume sales as production lines have fully recovered from the fire that broke out at its Alor Gajah plant, due to lower ASPs. PATAMI rose 24% to RM25m, which is stronger than revenue growth due to final year-end adjustments on its current year tax and deferred tax provisioning.

Similarly, YoY, 1Q15 revenue and net profit fell by 4% and 6%, respectively largely due to lower ASPs on the back of a flattish volume growth as some production was temporarily halted due to the fire in the Alor Gajah plant. We believe start-up costs were incurred as the Group continued to install and test-run brand new lines at its two new plants in Meru, Klang. These state-up costs will be absorbed once all the lines have been installed and are running at optimum levels.

Outlook

Growth going forward is expected to be driven by two new plants and we understand that the building structures for Plant #10 and Plant #11 i.e. Lot 6059 and 6058 in Meru, Klang are up and the first batch of lines has commissioned. Lot 6059 and 6058 will have 24 and 16 production lines producing 3.2b and 2.2b pieces of nitrile gloves p.a., respectively, bringing the total nitrile production capacity from 6.9b (including the 1.4bn in Lot 6070) to 12.3b pieces p.a. or 52% of the total installed capacity.

Change to Forecasts

We are downgrading our FY15E and FY16E net profits by 9% and 6%, respectively, taking into account lower ASPs and margins.

Rating & Valuation

Correspondingly, our TP is reduced from RM2.75 to RM2.30 based on unchanged 13x FY16E revised EPS. Our lowered target price also reflect a lower PER from 14x to 13x, taking into account the slower-than-expected new plant ramp up. Reiterate OUTPERFORM.

Risks to Our Call

Slower-than-expected commissioning of new plants.

Source: Kenanga Research - 26 May 2015