RUBBER GLOVES SECTOR
By Kenanga Research
KENANGA Research has maintained its “overweight” rating on the rubber gloves sector.
However, the research house was unperturbed and expected the sector to recover and outperform in subsequent quarters, based on its analysis that the new capacity expansion would be slower-than-expected. This should help maintain the supply and demand equilibrium and ultimately dispel market skepticism of a potential oversupply situation.
It also expected earnings growth to resume in subsequent quarters, underpin by new capacity expansion fuelled by sustained demand for rubber gloves, the weakening of the ringgit against the US dollar, which is positive to rubber glove players, and the sustained low raw material prices.
Its top pick was Supermax as the group was trading at 11.4 times financial year 2014 estimate (FY14E) earnings per share (EPS) (30% discount to the sector average), compared to an average 15% net profit growth over the next two years.
Kenanga said it believes the valuation gap between Supermax and Kossan, who was trading at 14.7 times FY14E, should narrow when considering Supermax’s capacity and net profit are at levels similar to Kossan. It gave “outperform” calls on Kossan and Hartalega.
By Public Investment Research
Target Price: RM3.30
Following the news that Kian Joo Can Factory Bhd had entered into a into a conditional business sale agreement (BSA), properties sale agreement and assets sale agreement with Aspire Insight Sdn Bhd, Public Investment Research lowered its call to “neutral”, which it said was “purely academic at this point” as the upside would be limited.
The research house also lowered its target price to RM3.30 per share, from RM3.52 per share previously, to reflect the current offer on the table.
It said Aspire’s offer price has been “raised” to RM3.36 per share, after agreed to waive a term in its initial letter of offer with regards to dividend distributions, essentially including an outstanding dividend declaration of 6.25 sen per share as an addition to its earlier offer of RM3.30 per share.
It added that the transaction was seen proceeding without significant hitches, as there probably are sufficient votes already in the bag to see this through.
Public Investment Research noted that it would not likely to see higher value it had been so fervently piping for to-date.
It said upon completion of the BSA, Aspire’s indirect shareholding in BOX-PAK (Malaysia) will increase to 54.83%, necessitating it to make a mandatory general offer for the shares it does not own. However, no price has been stated, but it opined that it would most likely be around the current trading range.
By SJ Securities Sdn Bhd
Fair Value: RM6.26
SJ Securities Sdn Bhd has revised its target price on Scientex Bhd to RM6.26 from RM5.68 after rolling over its valuation to financial year ending July 31, 2015 (FY15) using the sum-of-parts (SOP) method.
It valued the group’s manufacturing segment by FY15 forecasted net profit of RM84mil, a 10.5% higher to FY14 forecast.
It was pegged to a targeted price-earnings (PE) ratio of 14 times, underpinned by the growth drivers that includes 4 W&H consumer packaging machines are arriving on stages by August 2014 that would enhance the capacity for blown film by 50%, the upcoming 6-micron cast film by FY14 that yields 12% to 15% profit before tax margin, and the newly set-up procurement centre in Singapore that will lift efficiency in procurement of raw materials as well as strengthen the tie with existing clientele in the region.
Meanwhile, for the group’s property segment, SJ Securities said it was cautiously optimistic on the prospect segment post-introduction of property cooling measure and possible rise of interest rate in the first half of 2014.
Taking into consideration of the growth and downside impacts in both of the manufacturing and property segments, it maintained “neutral” on Scientex with a revised target price of RM6.26, implicating a 6.3% upside potential. It reckoned the current price has almost reflected its fair value.
P.T. INDOFOOD CBP SUKSES MAKMUR TBK
By RHB Indonesia Research Institute
Target Price: 10,050 rupiah (RM2.91)
RHB Indonesia Research Institute said Indofood CBP’s (ICBP) financial year 2013 (FY13) earnings were flat at 2,225 billion rupiah (RM650mil) – lower than its estimate and consensus – despite an increase in its sales.
It said this was primarily due to narrower profit margins, especially in ICBP’s noodles and dairy divisions.
The research house said the higher noodles and dairy products’ average selling prices in 2013 were not able to cover all cost increases, especially raw material and labour costs.
It maintained its “neutral” call on the group with a target price of 10,050 rupiah (RM2.91), which implied 21.5 times to 19.1 times FY14 to FY15 forecast PE ratios.
It noted that ICBP’s fourth quarter 2013 noodles’ earnings before interest and tax (EBIT) declined 38.6% quarter on quarter (q-o-q) to 399 billion rupiah. It said the majority of noodle average selling price (ASP) hikes occurred in the quarter under review, which saw prices increasing 5.4% quarter-on-quarter that leads to lower fourth-quarter 2013 (4Q13) noodles sales volume, which declined 13.3% quarter-on-quarter.
Meanwhile, the group’s dairy division booked EBIT losses of 2 billion rupiah in 4Q13 from 3Q13, due to hi gher raw materials and skimmed milk prices as well as higher dairy ASP.