Stock Name: NHFATT
Company Name: NEW HOONG FATT HOLDINGS BHD
Research House: OSK
New Hoong Fatt Holdings Bhd (NHF)
(May 14, RM2.26)
Maintain buy at RM2.25 with lower target price of RM2.62: NHF reported 1QFY10 revenue and net profit of RM52.8 million and RM6.41 million respectively.
The annualised numbers were 5% and 18% below our estimates respectively as revenue shrank on the fewer working days while its bottom line was weighed down by higher raw material prices. Year-on-year (y-o-y) revenue, though, was higher by 16% on contribution from its new joint-venture trading partner and a recovery in exports. Its quarter-on-quarter (q-o-q) top line was quite flat but we see revenue gaining pace on the back of increasing contribution from the export market while the domestic market will continue to be driven by the positive tone in the overall economy.
NHF's bottom line expanded by 14.4% y-o-y (q-o-q: -3%). While its revenue was no cause for concern, we are leaving our top line forecasts unchanged.
However, we had earlier underestimated the impact of higher raw material prices as cold rolled coil (CRC) prices have risen by as much as 12% y-o-y based on a three-month stockpile over 1Q.
This has pressured Ebit (earnings before interest and tax) margins, which came in at a lower 13.9% during the quarter versus 15.3% in the preceding quarter (1QFY09 at 13.5%). To date, CRC prices have surged by as much as 47% y-o-y (our previous forecast was 20%). This prompts us to cut our earnings forecasts by 10% for FY10, and by 4% and 15% respectively for FY11 and FY12.
NHF would only see an increase in production capacity to capitalise on the potential in the export market once its plant starts operation by 3QFY10.
The company is running at about 70% capacity and will increase production by more than 15% with the new plant.
Following the earnings downgrade of 4%-15% over FY10-FY12, we have lowered our target price from RM2.75 to RM2.62. Maintain buy. Our target price is premised on seven times PE (price-to-earnings), which is in line with NHF's auto parts peer average. ' OSK Research, May 14
This article appeared in The Edge Financial Daily, May 17, 2010.
Company Name: NEW HOONG FATT HOLDINGS BHD
Research House: OSK
New Hoong Fatt Holdings Bhd (NHF)
(May 14, RM2.26)
Maintain buy at RM2.25 with lower target price of RM2.62: NHF reported 1QFY10 revenue and net profit of RM52.8 million and RM6.41 million respectively.
The annualised numbers were 5% and 18% below our estimates respectively as revenue shrank on the fewer working days while its bottom line was weighed down by higher raw material prices. Year-on-year (y-o-y) revenue, though, was higher by 16% on contribution from its new joint-venture trading partner and a recovery in exports. Its quarter-on-quarter (q-o-q) top line was quite flat but we see revenue gaining pace on the back of increasing contribution from the export market while the domestic market will continue to be driven by the positive tone in the overall economy.
NHF's bottom line expanded by 14.4% y-o-y (q-o-q: -3%). While its revenue was no cause for concern, we are leaving our top line forecasts unchanged.
However, we had earlier underestimated the impact of higher raw material prices as cold rolled coil (CRC) prices have risen by as much as 12% y-o-y based on a three-month stockpile over 1Q.
This has pressured Ebit (earnings before interest and tax) margins, which came in at a lower 13.9% during the quarter versus 15.3% in the preceding quarter (1QFY09 at 13.5%). To date, CRC prices have surged by as much as 47% y-o-y (our previous forecast was 20%). This prompts us to cut our earnings forecasts by 10% for FY10, and by 4% and 15% respectively for FY11 and FY12.
NHF would only see an increase in production capacity to capitalise on the potential in the export market once its plant starts operation by 3QFY10.
The company is running at about 70% capacity and will increase production by more than 15% with the new plant.
Following the earnings downgrade of 4%-15% over FY10-FY12, we have lowered our target price from RM2.75 to RM2.62. Maintain buy. Our target price is premised on seven times PE (price-to-earnings), which is in line with NHF's auto parts peer average. ' OSK Research, May 14
This article appeared in The Edge Financial Daily, May 17, 2010.
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