INVESTMENT HIGHLIGHTS

• 9MFY19 results below expectation

• 9MFY19 core earnings fell 33% yoy to RM8.2m

• 3QFY19 was a divergence from the seemingly better 2QFY19

• We turn more cautious for its near-term growth outlook

• Downgrade to NEUTRAL with lower TP of RM1.32

9MFY19 results below expectation as Superlon’s core net profit of RM8.2m made up only 55% of our full year forecast. The negative surprise is largely attributed to unfavourable product mix which resulted to in lower ASP and profitability. An interim dividend of 1.15 sen was announced, bringing ytd DPS to 3.05 sen.

9MFY19 core earnings fell 33% yoy to RM8.2m mainly due to 6.8% revenue slid. Ytd core net income fell short of expectation mainly due to lower sales from its main insulation material manufacturing division. PBT for the segment during the period fell by 19% yoy.

3QFY19 was a divergence from the seemingly better 2QFY19.

Qoq, core net profit fell 54.1% to RM1.8m despite revenue improved 1.9% to RM25.5m. The underwhelming quarter was mainly due to unfavourable product mix, leading to lower average selling prices and profitability. Gross profit margin fell to 25% (2QFY19: 35.5%). Compared to a year ago, core net profit dropped 60.1% while revenue was down by 5.9% due to a more competitive business environment.

We turn more cautious for its near-term outlook. This is premised on the competitive pricing landscape and uncertainty in export demand. We understand that demand from some of its exporting countries have slowed down. On the flipside, some of it main raw material prices have declined by about 15% compared to a year ago. USD/MYR exchange rate at above 4.0 is still accommodative for its export business.

Earnings cut by 25.3% for FY19F and 13.1% for FY20F to RM11.2m and RM15.9m respectively. Revenue for FY19F/FY20F are also trimmed by 11.8%/14.0% to RM104.9m and RM118.3m respectively. This follow as we revise its average selling prices and sales volume in-line with our more conservative outlook. We also introduce our FY21F numbers.

Source: MIDF Research - 25 Mar 2019