Stock Name: KENCANA
Company Name: KENCANA PETROLEUM BHD
Research House: KENANGA
Success Transformer Group Bhd
(May 25, RM1.01)
Maintain buy at RM1.08 with lower target price of RM1.55: Success Transformer has a slow start to the year with 1Q10 revenue and net profit coming in at 19% of our forecast. While transformer and lighting were in line with our expectation, contributing RM33 million or 24% to our full-year estimates, process equipment had a poor start, contributing a mere RM6.4 million or 9%.
Quarter-on-quarter (q-o-q), revenue dipped 26% with all divisions registering lower sales. Process equipment took a hard knock, down 63% sequentially while transformer and lighting combined was down 8%. As a result, net profit dipped 20% to RM5.2 million (4Q09: RM6.5 million) mainly due to a marginal operating loss of RM263,000 registered by its process equipment division.
However, strong operational margins at its transformer and lighting division which jumped to 23% (4Q09: 14%) had mitigated substantially the poorer showing from process equipment. Better product mixes were the main earnings drivers.
Year-on-year (y-o-y), revenue fell 13% while net was 15% lower due to losses from its process equipment division. Transformer and lighting division combined had in fact enjoyed a 20% uptick in sales while operating profit was 48% higher, helped by higher operating margins at 23% (1Q09: 19%).
The management is cautious of future prospects in view of the current market uncertainties although process equipment is expected to see substantial improvement in the subsequent quarters on improved order flows.
As at May, process equipment under 65%-owned Seremban Engineering stands at RM27 million with the management confident of doubling the figure towards the latter part of the year. Expansion into new markets including Oceania and Africa will provide growth impetus. Based on guidance, the management sees huge latent potential from Africa in terms of sales and profitability.
We are tweaking our forecast and factoring higher minority to reflect the listing of its process equipment subsidiary. Diluting its interest to 65% from 100% previously, net is only lowered by less than 1%.
With improved transparency post-listing, we were able to fine-tune our forecast for process equipment. We maintain a buy with RM1.55 target price (RM1.58 previously) based on an unchanged seven times FY10F. ' Kenanga Research, May 25
This article appeared in The Edge Financial Daily, May 26, 2010.
Company Name: KENCANA PETROLEUM BHD
Research House: KENANGA
Success Transformer Group Bhd
(May 25, RM1.01)
Maintain buy at RM1.08 with lower target price of RM1.55: Success Transformer has a slow start to the year with 1Q10 revenue and net profit coming in at 19% of our forecast. While transformer and lighting were in line with our expectation, contributing RM33 million or 24% to our full-year estimates, process equipment had a poor start, contributing a mere RM6.4 million or 9%.
Quarter-on-quarter (q-o-q), revenue dipped 26% with all divisions registering lower sales. Process equipment took a hard knock, down 63% sequentially while transformer and lighting combined was down 8%. As a result, net profit dipped 20% to RM5.2 million (4Q09: RM6.5 million) mainly due to a marginal operating loss of RM263,000 registered by its process equipment division.
However, strong operational margins at its transformer and lighting division which jumped to 23% (4Q09: 14%) had mitigated substantially the poorer showing from process equipment. Better product mixes were the main earnings drivers.
Year-on-year (y-o-y), revenue fell 13% while net was 15% lower due to losses from its process equipment division. Transformer and lighting division combined had in fact enjoyed a 20% uptick in sales while operating profit was 48% higher, helped by higher operating margins at 23% (1Q09: 19%).
The management is cautious of future prospects in view of the current market uncertainties although process equipment is expected to see substantial improvement in the subsequent quarters on improved order flows.
As at May, process equipment under 65%-owned Seremban Engineering stands at RM27 million with the management confident of doubling the figure towards the latter part of the year. Expansion into new markets including Oceania and Africa will provide growth impetus. Based on guidance, the management sees huge latent potential from Africa in terms of sales and profitability.
We are tweaking our forecast and factoring higher minority to reflect the listing of its process equipment subsidiary. Diluting its interest to 65% from 100% previously, net is only lowered by less than 1%.
With improved transparency post-listing, we were able to fine-tune our forecast for process equipment. We maintain a buy with RM1.55 target price (RM1.58 previously) based on an unchanged seven times FY10F. ' Kenanga Research, May 25
This article appeared in The Edge Financial Daily, May 26, 2010.
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