• 3QFY19 earnings up 194% y-o-y led by GP margin recovery
• 9MFY19 earnings within expectations
• Maintain HOLD with a higher TP of RM5.30
• Expiration of anti-dumping duties on 15 Nov 2018 could adversely impact the group’s prospects

What’s New

Strong y-o-y earnings growth, led by higher margin recovery. Despite 3QFY19 revenue only inching up by 1.5% y-o-y, Perstima’s 3QFY19 earnings rose sharply by 194% yo-y to RM10.0m. Earnings fell 8% q-o-q due to lower revenue. We believe 2QFY19 topline was temporarily boosted by large scale inventory purchases by its customers to take advantage of the tax holiday in Malaysia between June-August.

Within expectations. The strong earnings growth compared with the corresponding period last year was driven mainly by recovery in its gross profit margin (3QFY19: 6.4% vs 3QFY18: 3.4%). Perstima’s 9MFY19 earnings came in at RM34.4m, accounting for 77.5% of our full-year earnings estimate. The earnings are within expectations as we expect 4QFY19 to be a relatively weaker quarter.

Still anticipating a challenging environment. In the note accompanying its quarterly results announcements, the group highlighted that it expects the operating environment to remain challenging and competitive. The expiration of anti-dumping duties on 15 November 2018, volatility of ringgit against USD and a higher presence of imports from overseas are expected to affect the growth and profitability of the group.

Maintain HOLD with a higher TP of RM5.30. We are maintaining our earnings forecasts for Perstima. We maintain our HOLD recommendation for the group with a higher TP of RM5.30, upon rolling forward our valuation base to end CY19.

Although margin recovery implies that competition from tinplate imports from Korea and China to Malaysia may be subsiding, the expiration of anti-dumping duties on 15 November 2018 could re- intensify the competition going forward.

To recap, the authorities imposed anti-dumping duty rates ranging up to 9.78% on the export price of electrolytic tinplates from Korea and China. The duration of the antidumping duty was from 16 November 2013 to 15 November 2018. Given the recovery of its share price in 2H18, we believe that the stock is fairly valued this this juncture.

Source: Alliance Research - 28 Jan 2019