Results Review

• Excluding forex loss amounting to RM6.5mn, FY16 core profit of RM33.7mn came in below expectation, accounting for 78.7% of our full-year estimates. The variance was due mainly to higher-thanexpected admin and general expenses.

• YoY, FY16 core profit plunged 51.5% as revenue dropped 7.2% to RM695.7mn. The significant drop in profit was due mainly to higher production and operating costs, arising from increased natural gas price and high spare parts costs due to weakening of Ringgit, as well as clearance of slow-moving inventories at a discounted price, and lower economies of scale given the drop in sales.

• QoQ, the revenue rebounded 5.4% from the lowest level in the past 3 years to achieve a top line of RM174.6mn. Core profit for the quarter surged 352.3% due mainly to improvement in the production efficiency and productivity, together with written back of inventories.

• An interim dividend of 5sen/share was declared, bringing the total dividend for FY16 to 10sen/share, maintaining the same quantum last year.

Impact

• Earnings forecasts for FY17/FY18 were cut by 25.7% and 26.7% respectively as we lower our margin assumptions in view of the higher production and operating costs environment due to weakening of Ringgit and higher energy cost.

Outlook

• We are positive on its operation in Vietnam, as it shows sign of picking up, supported by upbeat sentiment in Vietnam’s property market. However, the contribution from Vietnam is relatively small compared to Malaysia’s operation.

• However, the operating environment in the local market which we estimate contributing about two-thirds of the group’s total revenue, is expected the be tough. This is in view of weak property transactions. in major states in Malaysia.

Valuation

• As the group has been consistent in paying dividend, coupled with healthy cash flow, we switch our valuation method to dividend discount model. We revise the target price from RM2.07 to RM2.00, based on a required return of 8% and 3% growth rate. Maintain our SELL call on the stock.

Source: TA Research - 1 Mar 2017