INVESTMENT HIGHLIGHTS

• 1QFY17 results above expectations

• Net profit +37.5% as revenue +36.3% yoy

• Sales grew over 30% in Malaysia, Vietnam and Indonesia

• Higher FV of RM1.20 based on FY18F PER of 12x

1QFY17 results above expectations. Samchem’s 1QFY17 net profit of RM5.01m was above our expectations, making up 29% of our full year forecast due to better than expected volume growth in key markets. Revenue of RM217.57m came in at 28% of our full year estimate driven by growth in its three main markets: Malaysia, Vietnam and Indonesia.

Net profit +37.5% as revenue +36.3% yoy. Its operating margin improves to 4.9% in 1QFY17 compared to 4.71% in FY16 while net profit margin was enhanced by 0.15ppt to 2.30% during the quarter. We expect better margins for FY17 compared to FY16 due to higher volume and sales.

Earnings +44.8% while topline +2.2% qoq. The higher sequential profit is attributed to lower operating expenses as operating profit margin declined by 0.4 ppt compared to the previous quarter. This marks the third consecutive quarterly growth for the company.

Sales grew over 30% in Malaysia, Vietnam and Indonesia.

During the quarter, sales for Malaysia grew by 33% while Vietnam and Indonesia increased by 39%. The high growth in these key markets are attributed to the group’s market positioning strategies as well as its efforts in strengthening its competitive capabilities. For instance, Samchem is one of the only three major petrochemical distributors in Vietnam.

Market expansion beyond Southeast Asia. The company is looking into expanding into Myanmar and Laos in the next three and five years. On top of that, it was given the distribution rights by Petronas Chemicals in Singapore, Pakistan, Bangladesh, South India, Sri Lanka and New Zealand. These expansion plans should help Samchem grow further in the years to come.

We increase FY17 revenue and profit estimates by 33% and 16% respectively due to better than expected growth in Samchem’s key markets. We also introduce our FY18 revenue and profit forecast of RM1104.62m and RM27.28m, which are 19.65% and 33.35% higher compared to FY17F supported by its expansion plans

Higher FV of RM1.20 based on FY18F PER of 12x as we roll over our valuation. The FV of RM1.20 is based on 12x FY18F EPS of 10.03 sen. The valuation method is unchanged based on the average PER of chemical distributors listed on Bursa.

Source: MIDF Research - 11 May 2017