Stock Name: AJIYA
Company Name: AJIYA BHD
Research House: OSK
Ajiya Bhd
(April 26, RM2.15)
Reiterate buy at RM2.15 with an upward revised target price of RM2.59: In view of Ajiya's seasonally weaker first quarter ended Feb 28, 2010 due to the Chinese New Year festivities (57% year-on-year jump in net profit to RM5.65 million and 8.15% y-o-y growth in revenue to RM76.7 million; financial year ending Nov 30, 2010), the earnings were within our expectations.
Although revenue growth was below our expectations, its strong net earnings growth beat our estimates. We make marginal adjustments (less than 5%) to our earnings forecast on adjusting our balance sheet numbers to reflect its latest reported audited accounts.
Nevertheless, we now arrive at a higher target price of RM2.59 against RM1.90 previously, on adjusting our valuation parameters to account for higher peers' price-to-earnings (PE) ratio, price-to-book value (P/BV) and five-year PE band.
Recovery is in sight for the company. Although y-o-y revenue grew by only 8%, which was lower than our full-year forecast of 14% growth, Ajiya's combination of better product selling mix and economies of scale pushed up its net profit growth by more than 50% y-o-y.
Pre-tax margins on a y-o-y basis grew to 13% from 9.3% a year ago. Going forward, we reckon that product orders will strengthen on higher demand while selling prices will be higher as prices of steel are surging, which will drive revenue growth.
There are some preliminary developments. We visited Ajiya recently to seek an update on its expansion plans this year. Although there are no specific details, management nonetheless shared its growth targets for this year and next.
Broadly, Ajiya will be looking to expand its domestic production capacity by approximately 4% to 10% in the second half of this year while possibly expanding capacity by 10%-30% next year upon constructing and commencing its first anchor plant in Thailand to increase its regional presence.
On slightly higher assumptions to our earnings estimates and adjusting our valuation parameters to account for a higher peers PE (11.9 times from 5.9 times), P/BV (0.76 times from 0.67 times) and five-year PE band (5.69 times from 7.47 times), we arrive at a revised target price for Ajiya of RM2.59. Our target price factors in a 10% discount owing to the low liquidity in the stock. - OSK Research, April 26
This article appeared in The Edge Financial Daily, April 27, 2010.
Company Name: AJIYA BHD
Research House: OSK
Ajiya Bhd
(April 26, RM2.15)
Reiterate buy at RM2.15 with an upward revised target price of RM2.59: In view of Ajiya's seasonally weaker first quarter ended Feb 28, 2010 due to the Chinese New Year festivities (57% year-on-year jump in net profit to RM5.65 million and 8.15% y-o-y growth in revenue to RM76.7 million; financial year ending Nov 30, 2010), the earnings were within our expectations.
Although revenue growth was below our expectations, its strong net earnings growth beat our estimates. We make marginal adjustments (less than 5%) to our earnings forecast on adjusting our balance sheet numbers to reflect its latest reported audited accounts.
Nevertheless, we now arrive at a higher target price of RM2.59 against RM1.90 previously, on adjusting our valuation parameters to account for higher peers' price-to-earnings (PE) ratio, price-to-book value (P/BV) and five-year PE band.
Recovery is in sight for the company. Although y-o-y revenue grew by only 8%, which was lower than our full-year forecast of 14% growth, Ajiya's combination of better product selling mix and economies of scale pushed up its net profit growth by more than 50% y-o-y.
Pre-tax margins on a y-o-y basis grew to 13% from 9.3% a year ago. Going forward, we reckon that product orders will strengthen on higher demand while selling prices will be higher as prices of steel are surging, which will drive revenue growth.
There are some preliminary developments. We visited Ajiya recently to seek an update on its expansion plans this year. Although there are no specific details, management nonetheless shared its growth targets for this year and next.
Broadly, Ajiya will be looking to expand its domestic production capacity by approximately 4% to 10% in the second half of this year while possibly expanding capacity by 10%-30% next year upon constructing and commencing its first anchor plant in Thailand to increase its regional presence.
On slightly higher assumptions to our earnings estimates and adjusting our valuation parameters to account for a higher peers PE (11.9 times from 5.9 times), P/BV (0.76 times from 0.67 times) and five-year PE band (5.69 times from 7.47 times), we arrive at a revised target price for Ajiya of RM2.59. Our target price factors in a 10% discount owing to the low liquidity in the stock. - OSK Research, April 26
This article appeared in The Edge Financial Daily, April 27, 2010.
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