1Q17 PATAMI of RM18.9m (+3% YoY) came at 28%/30% of our/consensus expectations full-year forecasts. We consider the results to be in inline with our expectation due to the seasonally stronger 1Q. QoQ, 1Q17 earnings returned to the black compared to a small loss of RM0.8m in 4Q16. We are keeping our FY17E and FY18E earnings forecasts unchanged. However, we roll forward our valuation from FY17E to FY18E. Correspondingly, our target price is raised from RM4.20 to RM4.30 based on an unchanged 16.5x FY18E EPS. Reiterate UNDERPERFROM.

Result Highlights. QoQ, 1Q17 revenue rose 6% due to higher demand from government hospitals and improved contribution from Indonesia. 1Q17 registered a PBT of RM27.8m compared to RM4.1m in 4Q16 due to a turnaround in the logistics division. The logistic division recorded a PBT of RM2.2m in 1Q17 compared to a loss of RM13.8m in 4Q16 due to a lower finance charge. This brings 1Q17 PATAMI to RM18.9m compared to a loss of RM0.8m in 4Q16. A first single-tier interim DPS of 4.0 sen was declared, which is within our expectation. YoY, 1Q17 PATAMI rose 3% thanks to: (i) lower finance charges , (ii) the Logistics and Distribution division which recorded a PBT of RM2.2m compared to RM0.9m in 1Q16, and (iii) higher offtake for in-house products due to higher demand from Government hospitals under the concession business coupled with double-digit growth from the private sector business and the Group’s Indonesian operations. The Indonesian division achieved a PBT of RM0.9m, a turn around from the deficit of RM1m in 1Q16. This was mainly attributable to higher contributions because of a production rationalisation exercise as well as reduced finance costs.

Outlook. We expect earnings to be lukewarm in subsequent quarters in anticipation of volatile off-take and potential higher operating expenses. Additionally, the roll-out of PHIS is expected to continue to dampen bottom-line over the short-term. The Indonesian operations remain a key area of growth, while also making further progress in the European Union as the Group seeks to expand its global presence. In tandem with this, the Group is focused on implementing continuous cost optimisation measures across its operations. Over the longer-term, we expect its manufacturing division to propel earnings. The group aims to add about 200 new products over the next 10 years to its existing portfolio of around 500 products. This should boost demand for its products and lift earnings. We consider the results to be in inline with our expectation due to the seasonally stronger 1Q. QoQ, 1Q17 earnings has returned to the black compared to a small loss of RM800k in 4Q16. We are keeping our FY17 and FY18 earnings forecasts unchanged.

Reiterate UNDERPERFORM. However, we roll forward our valuation from FY17E to FY18E, Correspondingly, our target price is raised from RM4.20 to RM4.30 based on an unchanged 16.5x FY18E EPS. Reiterate UNDERPERFROM.

Source: Kenanga Research - 17 May 2017