1Q/FY17 RESULTS

“Back to profitability”

Xingquan’s 1Q/FY17 earnings (for quarter ended 30th September 2016) were a pleasant surprise. This was due to the huge losses suffered during the preceding quarter.

“Pleasant surprise”

The group recorded revenue of RM53.0 million and NPAT (net profit after tax) of RM11.9 million during its 1Q/FY17. Group revenue and NPAT both turned out lower y-o-y versus 1Q/FY16. Group revenue was affected by lower sales volumes, particularly for the “Shoe Soles” and “Apparels” business segments during the quarter. Consequently, NPAT dropped in tandem with the lower revenue during 1Q/FY17.

“Sales volumes still weak”

Selling and distribution expenses were lower y-o-y due to lesser market development costs and renovation subsidies incurred during the quarter. Tax rates were lower during the quarter due to the higher gains on foreign exchange rate differences.

“Shoe soles production affected”

Shoe soles production (and hence sales) was affected due to the relocation of machines from the group’s Huian factory to its premises in Jinjiang, in order to have better management and efficiency in the future. Comparing q-o-q versus 4Q/FY16, the group’s revenue was lower, though NPAT was recorded, instead of losses. Revenue was affected by lower overall sales volumes across all product segments.

RECOMMENDATION

Based on our forecast of Xingquan’s FY17 EPS and an estimated P/E of 1.0 times, we set a FY17-end Target Price (TP) of RM0.095 (Hold). This TP is just 0.5 sen higher than the market price on the date of this report. Our TP for Xingquan reflects a P/BV of 0.05 times over its FY17E BV/share. Prospects for Xingquan during its FY17 definitely will remain challenging.

Source: Mercury Research - 21 Nov 2016