Investment Thesis:

Maintain HOLD with target price (TP) of RM3.50. We believe the negatives for Perstima (PER) have been largely priced in, given that the stock is trading at 10x FY21 price-to-earnings (PE), equivalent to -1 SD (standard deviation) below its historical mean.

Expect weaker 2HFY21. Given that the bulk of PER’s revenue is from the domestic market, demand for tinplate in Malaysia has a large bearing on the group’s prospects. With sluggish consumer sentiment and increase of cheap imports, we expect earnings to be weaker in 2HFY21.

Cheaper imports remain a threat. We believe that the domestic market is still being affected by cheaper imports which continue to weigh on PER’s revenue and margin.

Valuation

Post PER’s earnings revision, we lower our TP to RM3.50, pegged to 12-month forward PE of 11x.

Where we differ:

We are the sole research house covering PER. We adopt a neutral stance on the stock and believe that it is fairly valued at this juncture.

Key Risks to Our View:

A stronger-than-expected recovery of earnings, largely from its Malaysia operations, could provide upside risk. In addition, anti-dumping duties for imported tinplate could allow PER more pricing power over its products.

Source: Alliance Research - 14 Oct 2020