• 1HFY17 results within expectations

• 2QFY17 net profit up 5% despite marginal slid in revenue

• New warehouse could further improve operating efficiency

• Maintain BUY call and TP of RM2.89

1HFY17 results within expectations. Superlon’s 1HFY17 net profit of RM11.09m came in within our expectation, making up 58% of our full year earnings forecast. We expect results in the coming quarter to be slightly softer as installation jobs for thermal insulation slows down during the raining season. However, Superlon’s wide geographical presence will cushion any slowdown in any one particular market.

2QFY17 net profit up 5% yoy. Superlon’s net profit for the quarter climbed 5% due to the better margins from its manufacturing division. The better margins are attributed to lower material costs. The company has announced an interim dividend of 2.5 sen which is within our expectation. Its net cash improved to RM28.48m from RM27.53m last quarter.

New warehouse could further improve operating efficiency. The completion of its warehouse is on track and the extra 70,000 sq ft will ease up the current production bottleneck at its existing plant. It could also increase Superlon’s production capacity by 30%. With the additional floor space, Superlon could further optimise its operations layout and efficiency. Full-year earnings impact from the new facility is expected in FY18.

Maintain BUY with TP of RM2.89. We maintain our BUY recommendation and TP of RM2.89 as we keep our earnings estimates for FY17. The TP is based on 12x price-to-earnings of FY17F EPS, which is estimated at 24 sen. The valuation is premised on its 4-year mean PER

Source: MIDF Research - 16 Dec 2016