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101005_-_SIH_-_1Q11

101005_-_SIH_-_1Q11

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KENANGA RESEARCH HOLD RM2.

30
Target Price: RM0.96 Stock data
Market cap (RMm): Issued shares (m): 52-week range: 3-mth avg daily volume: Bloomberg code: YTD price chg: YTD KLCI chg: Est. free float: Major shareholders: SuppTech Holdgs. Sdn Bhd 502.5 218.5 RM0.80-RM2.35 1,158,184 shrs SIHB MK +72.9% +14.9% 33.5% 66.5%

Result Note
5 October 2010

Supportive Int’l Holdings
1H11 still under expectations
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1H11 net profit of RM1.7m was below expectations, accounting for 7% of our FY11E net profit of RM25.5m (10% of our FY11E core net profit of RM16.5m). Topline of RM27.9m only made up 29% of our FY11E revenue of RM97.7m, largely because the property development earnings are not in full force. Supportive Int’l Holdings (SIH) disappointing results was largely let by margins compressions arising from the plastics division. QoQ, 2Q11 revenue rose 18% to RM15.1m, led by improved volume sales in plastics division and recognition of property development revenue. Although property development operating margins improved slightly by 0.4ppt QoQ to 20.6%, plastics segment large margin compression by 17.6ppt QoQ to -1.9% dragged-down overall performances. We believe plastics margins may be impacted by higher cost of materials and/or one-off costs. Hence, the 52% YoY dip in 1H11 net profit. Lowering FY11E net profit by 27% to RM18.5m (core: RM9.5m) as we tone down our operating margin assumptions for the plastic division to 9% from 20% previously. We still include RM9m worth of tax refunds, recognizable in FY11. We also expect a significantly stronger 2H11 as we expect the property division to record higher billings; recall the Aman Bayu project is close to completion and will be ready for BTS sale by 2H11, meaning immediate high earnings recognition in a short period of time, as the company is waiting to convert a large part of the >60% ‘bookings’ rates into SPA sales upon the project’s completion. Lower fair value of RM0.96 (RM1.00 previously) based on blended 11x PER. We are using a higher E &E/EMS sector PER of 12x applied on 54% of our FY12E EPS of 8.6sen while applied 10x peer PER on the remaining is unchanged. We are awarding higher PER valuations as Digital China valuations (FY11E PER of 16x) are rubbing-off on SIH; even if we valued SIH at 16x using full FY12E EPS, fair value is only RM1.40. We still think valuations are rich as their venture with Digital China to manufacture and manage one-stop-solution ID cards in Chang De have yet to commence. HOLD maintained pending more updates from management on the latest. For those looking at purer exposures into the electronics manufacturing, we would prefer VS Industry (BUY : RM1.85) or PIE (BUY : RM5.20) while MahSing (BUY : RM2.10) offers better property exposure given their size, quick turnaround model, aggressive landbanking and yields of >4%.
2Q10 13.3 (10.9) 0.0 2.4 1.7 (0.2) 1.4 (0.5) 0.9 0.42 0.42 0.00 0.32 0.11 18% 11% 37% 3Q10 18.9 (15.8) 0.0 3.2 2.4 (0.2) 2.3 (0.7) 1.5 0.70 0.70 0.00 0.33 0.02 17% 12% 33% 4Q10 17.4 (18.1) 0.8 0.1 (0.7) (0.2) (0.9) (0.0) (0.9) -0.39 -0.39 0.00 0.32 (0.03) 0% -5% -1% 1Q11 12.8 (10.3) 0.2 2.7 2.0 (0.2) 1.8 (0.4) 1.4 0.63 0.63 0.00 0.33 (0.02) 21% 14% 23% 2Q11 15.1 (13.8) 0.0 1.3 0.6 (0.2) 0.4 (0.1) 0.3 0.15 0.15 0.00 0.33 0.00 9% 3% 15% QoQ% 18% -33% -83% -51% -70% -1% -78% 85% -76% -76% -76% 0% 117.2% YoY% 10% -27% 88% -33% -44% 15% -47% 89% -38% -39% -39% 3% -536.7% 1H10 28.4 (21.8) 0.6 7.2 5.7 (0.4) 5.3 (1.7) 3.6 1.63 1.63 0.00 0.32 0.11 25% 19% 33% 1H11 27.9 (24.1) 0.3 4.0 2.5 (0.4) 2.2 (0.5) 1.7 0.78 0.78 0.00 0.33 0.00 14% 8% 21% Ytd-YoY -2% -11% -57% -44% -56% 17% -59% 74% -52% -52% -52% 3%

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KLCI FBM30 FBM70 Syariah Hijrah No No No Yes No

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Consensus
FYE 31 Jan Net profit (RMm): EPS (sen): 2011E 2012E n.a. n.a. n.a. n.a. 2011E 2012E 25.5 23.3 -27% -19% 18.5 18.9 l

Forecast revision
FYE 31 Jan Prev. net profit (RMm): Revision (%): Revised net profit (RMm):

Share price chart

The Research Team Tel: 603-2713 2292 research@kenanga.com.my

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Result summary
FYE: 31 Jan (previously: 30 Sep) Revenue Op costs w/o depn/amort Other Op Income EBITDA EBIT Interest expense Pretax profit Taxation Net profit EPS (sen) Diluted EPS (sen) DPS (sen) NTA/share (RM) Net gearing/(cash) (x) EBITDA margin Pretax margin Effective tax rate

PP7004/02/2011(029201)

Result Review
QoQ (RMm) Revenue PBT 1Q11 12.8 1.8 2Q11 15.1 0.4 Chg 18% -78% Comments Improvement because of improved property and plastics revenue. Decline largely attributed to margin compressions in plastics division and lowers other operating income. Comments Slight dip due to lower plastics revenue. Dip because of 2Q11 weakness in plastics segment margins.

YoY (RMm) Revenue Net Profit

1H10 28.4 3.6

1H11 27.9 1.7

Chg -2% -52%

Earnings Estimates
FYE: 31 Jan (previously: 30 Sep) Revenue Pretax profit Net profit EPS (sen) Recur. EPS (sen) Recur. EPS growth (%) NTA/ share (RM) PER (x) P/NTA (x) EV/EBITDA (x) ROE % Dividend Yield (%) 2007A 53.9 0.5 0.4 0.2 0.2 104% 0.21 1317.8 11.2 256.7 0.9% 0.0% 2009A16mths 90.8 14.2 13.1 6.0 2.7 1473% 0.30 38.4 7.5 66.6 25.3% 0.0% 2010A 64.7 6.7 4.2 1.9 1.9 -30% 0.32 119.3 7.1 48.1 6.9% 0.0% 2011F 97.7 13.2 18.5 8.5 4.3 125% 0.37 27.2 6.3 29.5 27.4% 0.0% 20012F 116.0 26.2 18.9 8.6 8.6 99% 0.45 26.6 5.1 16.6 23.1% 0.0%

CMDF-Bursa Research Scheme (“CBRS”) This report has been prepared by Kenanga Investment Bank Berhad (KIBB) for purposes of CBRS administered by Bursa Malaysia B erhad, independent from any influence from CBRS or the subject company. KIBB will receive total compensation of RM15,000 each year for each company covered by it under CBRS. For more information about CBRS, please visit Bursa Malaysia’s website at: http://www.bursamalaysia.com/website/bm/ This document has been prepared for general circulation based on information obtained from sources believed to be reliable but we do not make any representations as to its accuracy or completeness. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may read this document. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees. Kenanga Investment Bank Berhad accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or any solicitations of an offer to buy or sell any securities. Kenanga Investment Bank Berhad and its associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein from time to time in the open market or otherwise, and may receive brokerage fees or act as principal or agent in dealings with respect to these companies. Published and printed by: KENANGA INVESTMENT BANK BERHAD (15678-H) (formerly known as K&N Kenanga Bhd) 8th Floor, Kenanga International, Jalan Sultan Ismail, 50250 Kuala Lumpur, Malaysia Telephone: (603) 2166 6822 Facsimile: (603) 2166 6823 Website: www.kenangaresearch.com ………………………. Yeonzon Yeow Head of Research

Supportive International Holdings – 5 October 2010

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