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PP10551/10/2010(025682) 28 September 2010

MALAYSIA EQUITY Investment Research Daily News

9MFY10 Results Review


Jason Yap +60 (3) 9207 7698 Jason.yap@my.oskgroup.com

Adventa
Higher Surgical Glove Contribution
RM3.73 RM3.73 RM2.39
The 3QFY10 results were within expectations. Although this quarters results were affected by continuously high latex prices and an unfavorable exchange rate, Adventas 3QFY10 net profit leapt by 27.1% q-o-q, mainly contributed by the higher sales of surgical gloves, which fetch higher margin. Despite our recent downgrade on the rubber glove sector to Neutral, we continue to like the companys leadership in the surgical and dental gloves segment. Maintain Buy with a target price of RM3.73. Within estimates. The 3QFY10 results were below consensus but within our expectations, making up 63% and 79% of consensus and our FY10 net profit forecasts. As we pointed out in our results preview earlier this month, we expect Adventas results to be affected by: 1) continuously high latex prices of about RM7.00/kg during the quarter, and 2) the weakening of USD against the Ringgit, resulting in a slight time lag in passing on the effects to its customers on a monthly basis. However, Adventa was fortunate in that its performance was boosted by increasing sales of surgical gloves, which command margins that are about 10%-pts higher than those of normal examination gloves. We gather that management has converted some basic examination glove production lines to produce surgical gloves as the demand for the higher end gloves has been the least hit by normalizing examination glove demand. Consequently, its 3QFY10 revenue of RM87.4m was 7.7% higher q-o-q, which partly contributed to the 27.1% q-o-q jump in net profit to RM8.2m. Also, we note that the tax expenses for the current quarter were lower q-o-q due to over-provision in the previous quarter. Maintain Buy. Our target price for Adventa is RM3.73, based on a PER valuation of 12x FY11 EPS. Although we are Neutral on the rubber glove sector, we continue to like the companys market leadership in surgical gloves as well as its niche in the dental glove segment. Currently, we observe that the higher end examination gloves have proven to be more resilient to normalization in demand, which we believe is the main factor hampering the performance of some of the listed rubber glove companies.

BUY
Target Previous Price

RUBBER GLOVES Adventas principal activities are in the manufacture of higher end examination rubber gloves such as surgical and dental gloves. Stock Statistics Bloomberg Ticker Share Capital (m) Market Cap (RMm) 52 week HL Price (RM) 3mth Avg Vol (000) YTD Returns Beta (x) Major Shareholders (%) Low Chin Guan

ADV MK 151.16 361.27 4.35 1.51 328.0 -23.3 1.01

48.71

Share Performance (%) Month Absolute 1m -19.4 3m -23.5 6m -31.1 12m 39.4

Relative -21.6 -28.8 -36.7 14.6

6-month Share Price Performance


5.00 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 Feb-10 Mar-10 Apr-10 Jun-10 Jul-10 Aug-10

FYE Oct (RMm)

*FY1/08

#FY10/08

FY10/09

FY10f 386.8 30.2 77.4 38.0 20.8 7.0 2.9 15.3 7.6 11.5 1.44 1.7 9.4

FY11f 482.0 45.2 49.7 54.0 31.1 8.0 3.3 19.9 9.5 7.7 1.70 1.4 6.9

Revenue 224.9 186.5 282.9 Net Profit 20.1 13.8 17.0 % chg y-o-y 31.9 -31.7 23.6 Consensus EPS (sen) 13.9 12.6 11.7 DPS (sen) 4.4 4.4 6.0 Dividend yield (%) 1.8 1.8 2.5 ROE (%) 14.1 8.0 9.2 ROA (%) 7.5 4.5 5.2 PER (x) 17.2 18.9 20.4 BV/share (RM) 1.21 1.28 1.28 P/BV (x) 2.0 1.9 1.9 EV/ EBITDA (x) 13.2 17.3 8.9 Notes: * Financial year ended 31 Jan #Financial year-end changed to 31 Oct (9-month figures, EPS annualised)

OSK Research | See important disclosures at the end of this report

OSK Research Results Table (RMm) FYE Oct Revenue 3Q10 87.4 2Q10 81.1 Q-o-Q chg 7.7% YTD FY10 245.2 YTD FY09 208.0 Y-o-Y Comments chg 17.9% Higher on higher selling prices of gloves to pass on the latex cost increase to its customers as well as higher sales following the increase in production capacity Higher due to sales of more higher margin gloves such as the surgical glove.

EBIT Net interest expense Associates PBT before EI EI PBT Tax MI Net Profit Core Net Profit EPS (sen) Core EPS (sen) DPS (sen) EBIT margin NTA/share (RM)

10.0 -1.5 0.0 8.5 0.0 8.5 -0.3 0.0 8.2 8.2 5.5 5.5 0.0 11.4% 1.42

9.1 -1.3 0.0 7.7 0.0 7.7 -1.3 0.0 6.4 6.4 4.4 4.4 0.0 9.5% 1.36

9.8% 10.2% 9.7% 9.7% -77.9% 27.1% 27.1%

30.3 -4.1 0.0 26.3 0.0 26.3 -2.2 0.0 24.0 24.0 16.2 16.2 0.0 12.4% 1.42

29.2 -4.4 0.0 24.8 -12.5 12.3 -0.7 0.1 11.6 24.1 8.1 16.3 0.0 14.1% 1.28

3.7% -8.8% 5.9% 113.5% 204.8% 106.4% -0.5%

FY09 losses were due to forex losses.

Higher in line with the higher EBIT.

Higher q-o-q due to higher sales of higher margin product mix.

OSK Research | See important disclosures at the end of this report

OSK Research

EARNINGS FORECAST

FYE Oct (RMm) Turnover EBITDA PBT Net Profit EPS (sen) DPS (sen) Margin EBITDA (%) PBT (%) Net Profit (%) ROE (%) ROA (%) Balance Sheet Fixed Assets Current Assets Total Assets Current Liabilities Net Current Assets LT Liabilities Shareholders Funds Net Gearing (%)

FY1/08 224.9 30.3 19.2 20.1 13.9 4.4 13.5 8.5 9.0 14.1 7.5 150.3 148.8 299.1 69.1 79.8 67.5 161.1 32.7

FY10/08 186.5 22.5 13.4 13.8 12.6 4.4 12.1 7.2 7.4 8.0 4.5 169.6 138.4 308.0 89.7 48.7 33.6 184.6 23.4

FY10/09 282.9 47.5 18.4 17.0 11.7 6.0 16.8 6.5 6.0 9.2 5.2 188.1 156.1 344.2 92.4 63.7 66.5 185.3 41.0

FY10f 386.8 50.9 37.5 30.2 20.8 7.0 13.2 9.7 7.8 15.3 7.6 229.7 218.7 448.4 145.3 73.3 94.9 208.1 62.7

FY11f 482.0 70.8 56.2 45.2 31.1 8.0 14.7 11.7 9.4 19.9 9.5 248.8 253.8 502.6 184.4 69.3 73.0 245.2 59.0

OSK Research | See important disclosures at the end of this report

OSK Research

OSK Research Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated (NR): Stock is not within regular research coverage All research is based on material compiled from data considered to be reliable at the time of writing. However, information and opinions expressed will be subject to change at short notice, and no part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financial instruments whether referred to herein or otherwise. We do not accept any liability directly or indirectly that may arise from investment decision-making based on this report. The company, its directors, officers, employees and/or connected persons may periodically hold an interest and/or underwriting commitments in the securities mentioned. Distribution in Singapore This research report produced by OSK Research Sdn Bhd is distributed in Singapore only to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, CAP. 289 of Singapore. If you are not an Institutional Investor, Expert Investor or Accredited Investor, this research report is not intended for you and you should disregard this research report in its entirety. In respect of any matters arising from, or in connection with, this research report, you are to contact our Singapore Office, DMG & Partners Securities Pte Ltd (DMG). All Rights Reserved. No part of this publication may be used or re-produced without expressed permission from OSK Research. Published and printed by :OSK RESEARCH SDN. BHD. (206591-V) (A wholly-owned subsidiary of OSK Investment Bank Berhad)

Chris Eng

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OSK Research | See important disclosures at the end of this report

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