We have added LUXCHEM into our GROWTH and DIVIDEND YIELD Portfolios with 10,000 shares each at yesterday’ closing price of RM1.54/share. In fact, we are also featuring LUXCHEM in our retail research, On Our Radar series this morning with Trading Buy at fair value of RM1.85/share. In our opinion, we believe LUXCHEM is a small cap worth adding into your investment portfolio given its resilient earnings, above average dividend yield of 4%-5% and net cash position. Our fair value of RM1.85/share is based on 12.5x FY16E PER which is in line with the small cap index average. The 30%/38% earnings growth in FY15E/FY16E is backed by the additional 10,000MT capacity expansion at its manufacturing plant in Melaka to 30,000MT since May last year. Improvement in profit margin is also expected as the revenue mix for the higher margin manufacturing business has improved. Moreover, the weakening of MYR against USD also works in its favour as the 60% of the manufacturing product are for export markets. Furthermore, nearly half of its earnings are derived from the defensive rubber glove industry, based on rubber and latex business segments.

Source: Kenanga Research - 8 Oct 2015