What’s New

• 1QFY19 results came in above expectation

• GP margin rebounded to about 8%, we believe due to subsiding competition from imports

• Revise earnings forecasts by 20-58%

• Upgrade to HOLD with higher TP of RM5.00

Lifted by margin recovery

Upgrade to HOLD. We upgrade our recommendation on Perusahaan Sadur Timah Malaysia Berhad (Perstima) from fully valued to HOLD with a higher TP of RM5.00. We believe the strong recovery in its GP margin implies that the intense competition arising from China’s exports of tinplates to Malaysia is subsiding. This should improve its earnings prospects substantially given that the Malaysian market still contributes >60% of the group’s revenue.

Where we differ. We are the sole broker covering Perstima. We are adopting a neutral stance on the stock as we believe that the stock is fairly valued at this juncture.

Potential catalysts. Stronger-than-expected recovery in earnings due to (1) subsiding competition from China’s exports of tinplates to Malaysia, and (2) higher-than-expected contributions from the overseas markets. Also, the extension of anti-dumping duties for imported tinplates could allow Perstima to have more pricing power over its products.

Valuation

Post earnings revisions and rolling forward our valuation base to FY19, we upgrade our recommendation for the group to HOLD with a higher TP of RM5.00, pegged to an unchanged forward PE of 12x.

Key Risks to Our View

Weaker-than-expected recovery in earnings due to (1) profit margin under pressure again going forward, and (2) lower- than-expected contributions from overseas markets.

Source: Alliance Research - 1 Aug 2018