Maintain NEUTRAL with a new MYR0.62 TP from MYR0.69, 8% expected total return. 9MFY18’s PATAMI of MYR29.2m missed – accounting for 65% of our estimates. Post results, we cut our FY18F-20F earnings by 11%, 11% and 10% to factor in the latest results and expectations of PBT margins of 6.5-6.8% (FY17: 6.9%). In line with the strategy to expand its overseas business, Luxchem is increasing the production capacity of subsidiary TMSB to 17,000 tonnes pa from 13,000 tonnes pa by early 2019. Management guided that the ongoing global trade tensions has a neutral impact to its business. No dividend was declared.

Missed. 9MFY18 (Jan) revenue was flat at MYR608m vs MYR610m in 9MFY17, as both Luxchem Corp’s trading and manufacturing segments registered revenues of MYR494m (9MFY17: MYR498m) and MYR114m (9MFY17: MYR112). By key geographical markets, Malaysia and Indonesia revenues barely changed: +1% (MYR438m) and -1% (MYR78m), while Vietnam saw revenue drop 7% to MYR62m on lower sales from the manufacturing segment. 9MFY18 PATAMI fell by 7% to MYR29.2m (9MFY17: MYR31.3m), from margins contraction. PAT margins were lower – to 4.8% from 5.2% – as the trading and manufacturing segments had their PAT margins reduced to 2.9% (9MFY17: 3.2%) and 12.9% (9MFY17: 14.1%). Stiffer competition and weaker YTD USD/MYR also contributed. In 1QFY17, Luxchem benefited from the spike in raw material prices due to unplanned global supply outages, which translated into higher selling prices and margins during that period. QoQ, topline improved 7% (MYR212m) while PATAMI rose marginally by 1% (MYR9.8m) – this was because the group’s bottomline was affected by lowerblended PAT margins: the trading segment was flat QoQ at 2.6%, while the manufacturing business stood at 13.4% vs 2QFY18’s 14.7%. This was partially offset by a lower effective tax rate of 24.6% (2QFY18: 26%).

We revise our FY18F-20F earnings lower by 11%, 11%, and 10% to factor in the latest results. We also assume lower trading margins of 4-4.3% from 4.8- 5%. Luxchem is in the process of expanding the production capacity of manufacturing subsidiary Transform Master (TMSB) via a debottlenecking exercise. This is expected to increase capacity to 17,000 tonnes pa from 13,000 tonnes pa by early 2019. No significant capex is needed.

Maintain NEUTRAL with lower TP of MYR0.62, pegged to FY19F P/E of 13x and EPS of MYR0.048.

Source: RHB Securities Research - 26 Oct 2018