• 1QFY21 earnings drop 10% y-o-y due to lower sales volume and selling price
• Outlook remains challenging mainly due to intense competition from imports
• Corporate exercises approved during EGM
• Maintain HOLD with unchanged TP of RM4.20

What’s New

1QFY21 earnings declined y-o-y, dragged by lower sales.

Perstima (PER) reported 1QFY21 earnings of RM10.4m (- 10.0% y-o-y, +127% q-o-q). The y-o-y decline in earnings was mainly due to lower volume and lower selling price. The group’s 1QFY21 earnings are within expectations, as we expect subsequent quarters to be weaker.

Malaysia operations – remains challenging. For Malaysia operations, the group reported a PBT of RM7m (-38.4% y-oy) on the back of lower revenue of RM116m (-26.3% y-o-y). The y-o-y decline in earnings was due to lower revenue and reduced profit margin. For its Vietnam business, revenue improved by 24.0% y-o-y to RM88m due to higher sales volume despite low selling prices. This helped improved its PBT to RM7m (65.6% y-o-y).

The Group’s Philippine operation is still at preliminary stage and did not register any revenue in 1QFY21. It recorded a RM0.5m loss mainly on rental and administration fees in the quarter

Reduced cash position. As of 1QFY21, the group has net cash of RM45m, reduced from RM91m in 4QFY20. This was largely due to increase in working capital in the quarter. Perstima did not announce a dividend for the quarter.

Outlook

Challenging environment. We expect the operating environment to remain challenging and competitive. The more intense competition from imports are expected to continue impacting the group’s growth and profitability.

Potential dilution to EPS. PER announced in early March that the group is going to undertake the following rights and bonus issues exercises that were approved during the EGM yesterday:

1. A rights issue of 19.9m shares (20% of its existing share base) on the basis of one new share for every five shares held at an issue price and entitlement date to be determined later.

2. A bonus issue of 9.9m shares on the basis of one bonus share for every two rights shares subscribed.

Assuming an indicative issue price of RM3.00, the group is expected to raise approximately RM59.6m. Some 92% of the proceeds raised (estimated RM54.8m) will be used to partially finance the electrolytic tinning and tin-free steel production line for the manufacturing plant in the Philippines. The remaining proceeds will be used for the purchase of raw materials and expenses for the proposals. The new plant has a manufacturing capacity of 200,000 MT per annum and is expected to be installed and fully commissioned by June 2021. Given that PER’s corporate exercises have yet to be completed, we are maintaining our earnings estimates for now.

Valuation and Recommendation

Maintain HOLD with RM4.20 TP. We maintain our HOLD recommendation for the group with an unchanged price (TP) of RM4.20, which is pegged to 12x FY21 PE. This is equivalent to its historical mean.

Source: Alliance Research - 19 Aug 2020