What’s New

• Although revenue was flattish, Perstima’s core earnings fell by 19% y-o-y from RM16m in 4QFY17 to RM13m in 4QFY18. The lower quarterly earnings y-o-y was mainly dragged by lower profit margin as the group was not able to fully pass on production cost hikes to customers in order to keep its prices competitive vis-à- vis China imports.

• We also observe that the group has registered positive administrative expenses of +RM0.7m in 4QFY18 (vs - RM2.3m in 4QFY17). Although no reason has been given for the positive administrative expenses, we believe that it was an accounting adjustment to account for overprovision in the past few quarters. Without such a positive accounting adjustment, the yo-y reduction in its 4QFY18 earnings should be more severe.

• The group expects operating environment to remain challenging and competitive going forward due to the higher presence of imports.

• Perstima declared a dividend of 30sen/share during the quarter, representing a payout ratio of >100%, which is a positive surprise. Nonetheless, we believe that such a high dividend payout is not sustainable. We maintain our dividend payout assumption of 65% for now, pending more clarifications from management.

• We adjust our FY19-20 earnings estimates by <5%, mainly for bookkeeping purpose.

• We maintain our FULLY VALUED recommendation with RM3.25 TP. Our RM3.25TP is pegged at 13x CY18 PE, in line with its average historical PE.

Source: Alliance Research - 1 Jun 2018