FY21 Core PATAMI of RM2,929m (+170% YoY) came in line with expectations at 95%/96% of our/consensus full-year forecast. We downgrade our FY22E net profit by 10% as we change our ASP assumption from USD27 to USD25/1,000 pieces and nudged down EBITDA margin from 20% to 19%. Our TP is lowered from RM1.80 to RM1.65 based on 13x FY22E EPS (at - 0.5SD below 5-year pre-COVID forward historical mean of 17x). Reiterate MARKET PERFORM.

Key results’ highlights. QoQ, 4QFY21 revenue fell 29% due to lower ASP (-36%) but mitigated by higher volume sales (+15%) from rubber gloves. EBITDA margin decreased by 23ppt from 55% in 3QFY22 to 32% in 4QFY22 due to lower ASP which fell faster than a corresponding decline in input raw material cost. This brings 4QFY21 core net profit to RM219m (-59%). A 4th interim DPS of 12.0 sen was declared bringing FY21 DPS to 48.0 sen which came above our expectation.

YoY, FY21 revenue rose 83% due to higher contribution from glove division (+89%), underpinned by higher ASP (+108%) which more than offset lower volume sales (-11%). This elevated FY21 core net profit to RM2,929m (+170%).

Outlook. The group highlighted that the performance in the quarter was also affected by logistic challenges caused by the global shipping container shortage of which we understand are unlikely to abate over the next two quarters. In the meantime, margins in subsequent quarters could be impacted as raw material cost is not adjusting as fast as falling ASP and hence earnings is expected to be lower sequentially in 1Q22. Due to over- ordering over the past 15 months since the pandemic started, the market is currently undergoing a phase of inventory adjustment. In the meantime, the planned capacity expansion over the next two years are as follows:- (i) a piece of land in Meru located adjacent to one of its current plants is earmarked for a single plant with 5b pieces capacity to be completed in two phases i.e. Phase 1 – 6 lines, 2b pieces commencing in 2H 2021 and Phase 2 – 10 lines, 3b pieces commencing in 1H 2022, and (ii) 12 lines with 4b pieces capacity to fully commission in 2HCY22 in Bidor. Upon completion, these three new plants will bring the group’s total installed capacity from 32b to 42.4b (+33%) pieces of gloves per annum.

We downgrade our FY22E net profit by 10% as we change our ASP assumption from USD27 to USD25/1,000 pieces and nudged down EBITDA margin from 20% to 19%. We introduce our FY23E earnings.

Maintain MP. Our TP is lowered from RM1.80 to RM1.65 based on 13x FY22E EPS (at -0.5SD below 5-year pre-COVID forward historical mean of 17x). Reiterate MP.

Key risks to our call include: (i) ASP falling steeper and sooner than expected and (ii) faster-than-expected vaccine roll-outs.

Source: Kenanga Research - 18 Feb 2022