INVESTMENT HIGHLIGHTS

• 9MFY17 results above expectations

• 9MFY17 net profit up 34%yoy

• Net cash increased further to RM29.43m

• Increase FY17 earnings assumption

• Maintain BUY with a higher TP of RM3.36

9MFY17 results above expectations. Superlon Holdings Bhd’s (Superlon) 9MFY17 net profit of RM17.34m made up 91% of our full year assumption of RM19.09m. Earnings exceed our expectation due to better than expected margin due to good product mix. The company has announced a special dividend of 6 sen, bringing its full year dividends to 11 sen, which is above our expectation of 9.5 sen.

9MFY17 net profit up 34%yoy. Cumulative profit grew +34% yoy due to higher volume sold and improved margins as a result of better product mix and favourable foreign exchange. Excluding the forex gain, 3QFY17 net profit grew 6% qoq and 24% yoy as a result of higher volume sold. Its 3QFY17 net profit grew 24% qoq and 45% yoy due to stronger USD/MYR exchange rates, improved operational efficiency and better product mix.

Net cash increased further to RM29.43m from RM27.53m as the company’s cashpile increase to RM37.35m due to shorter turnover periods. At current level, its cash per share is 47 sen, which makes up 17% of its share price. We expect Superlon’s balance sheet to remain healthy as the company has already spent a huge chunk of expenses for its new warehouse, which was completed earlier this year. We understand that the new warehouse is not being fully utilized at this point and expect earnings impact of the new building in FY18.

Increase FY17 earnings assumption. We have increased our FY17 earnings assumption by +13% after assuming better margin as we impute better product mix.

Maintain BUY with a higher TP of RM3.36 (from RM2.89). The higher TP is due to valuation rollover to FY18 EPS. Valuation method is unchanged by using 12x forward PE.

Source: MIDF Research - 27 Mar 2017