• 1QFY20 earnings dropped 4.4% y-o-y due to lower sales volume and higher administrative expenses

• Final DPS of 20sen declared for FY19, bringing its total DPS to 30sen, which came above expectations

• Challenging outlook mainly due to higher imported tinplates to Malaysia with expiration of anti-dumping duties

• Maintain HOLD with RM5.20 TP

What’s New

1QFY20 earnings declined y-o-y, dragged by lower sales. Perstima (PER) reported 1QFY20 earnings of RM11.6m (- 4.4% y-o-y, +78.5% q-o-q). The y-o-y decline in earnings was mainly due to (1) lower revenue (-5.9% y-o-y), and (2) higher administrative expenses (+32% y-o-y), though this was partially mitigated by a stronger 1QFY20 gross profit (GP) margin of 8.3% (1QFY19: 7.9%). The group’s 1QFY20 earnings accounted for 26.5% of our full-year forecast, which we deem to be within expectations.

Malaysia operations - remains challenging. For Malaysia operations, the group reported PBT of RM11.4m (-12.4% yo-y) on the back of lower revenue of RM157m (-2.5% y-oy). The y-o-y decline in earnings was due to lower revenue and reduced profit margin.

Vietnam operations - boosted by higher profit margin. For its Vietnam business, revenue dropped by 12.5% y-o-y to RM71.1m due to lower sales volume. Nonetheless, its PBT improved by 53.8% to RM4.2m, boosted by higher PBT margin of 5.9% (1QFY18: 3.3%)

Positive dividend surprise! During the AGM yesterday, the group declared final DPS of 20sen for FY19. This brings its total FY19 DPS to 30sen, which came above our expectations of 10sen and implies a payout ratio of 72.6%. With net cash per share of 67sen as at June 2019, we believe that there exists room for the group to maintain its DPS at 30sen. We have raised our DPS assumption to 30sen (previously 10sen) accordingly. This provides a decent yield of 6.3%.

Outlook

Still a challenging environment. We expect the operating environment to remain challenging and competitive. The expiry of anti-dumping duties in late 2018, volatility of the Ringgit against the US Dollar (USD) and increased overseas imports are expected to continue impacting the group’s growth and profitability.

Valuation and Recommendation

Maintain HOLD with RM5.20 TP. We maintain our HOLD recommendation for the group with an unchanged target price (TP) of RM5.20, pegged to 12x FY20 PE, close to its historical 5-year mean.

Source: Alliance Research - 20 Aug 2019