• Downgrade to HOLD (TP: RM0.58). Lee Swee Kiat Group (LSKG) 9MFY24 net profit of RM6.8mn was below both our and consensus expectation at 57% and 48% respectively. LSKG’s 3QFY24 headline profit declined by 71% YoY to RM1mn due to i) lower sales from domestic division including the rent-to-own collaboration with Cuckoo despite rebound in export sales, ii) rising average latex price, and iii) impairment from Cuckoo Napure rental amounted RM1.9mn. As a result, we cut our 2024F-26F forecast ascribe to elevated COGS and lower demand expectation. However, we believe export sales to remain robust supported by full economic reopening and China trade diversion. Downgrade to HOLD (from a BUY) with lower TP of RM0.58 (from RM0.78) based on PER of 11x pegged to FY25 EPS of 5.3sen.

• Key Highlights. LSKG does not affected directly by strengthened MYR in the export segment as it exports both of its raw material and trading goods in USD. Meanwhile, latex prices surged 43% YoY to THB 69.2/kg in September 2024, squeezed the quarter EBITDA margin to 15% vs 20% in 3Q23. We deemed the price fluctuation was driven by supply constraint in rubber production due to unfavourable weather conditions.

• Earnings Revision. We cut our earnings for FY24F/FY25F/FY26F by 25%/26%/27% to RM8.9mn/RM8.5mn/RM8.0mn due to expectation of higher COGS as well as cut our domestic channel growth.

• Outlook. We expect the export segment to remain healthy propelled by full economic reopening post-pandemic and China trade diversion while domestic sales to remain dull in near term due to inflationary risk and high interest rates environment.

Source: BIMB Securities Research - 28 Nov 2024