Stock Name: ADVENTA
Company Name: ADVENTA BHD
Research House: CIMB
Adventa Bhd
(June 16, RM3.15)
Maintain outperform at RM3.17 with target price of RM4.45: Adventa's 2QFY10/10 results missed expectations as annualised 1H net profit made up only 75% of our estimate and consensus. The absence of dividends was no surprise.
Although 2H earnings should be stronger, we think the company will find it a stretch achieving our forecast given the time lag in price adjustments and delay in the delivery of equipment for its new plants.
Factoring in lower sales volumes, higher latex prices and a weaker US dollar, we cut our FY10-12 earnings by 9%-17%. This takes our target price from RM5.44 to RM4.45, still pegged to a 20% discount to Top Glove's target P/E of 16.5x. Despite the earnings hiccups, we are still positive on this rubber glove manufacturer and continue to rate it an outperform. Potential rerating catalysts for the stock include earnings improvement supported by the recovery in demand after the rubber wintering season as well as further capacity expansion.
As we noted in our 1QFY10/10 results note, Adventa anticipated margin compression in 2QFY10 due to the time lag in adjusting average selling prices (ASPs) for higher latex prices. Recall that latex prices went as high as RM7.72/kg in April compared to an average of RM5.91/kg in 1QFY10. On top of that, the US dollar eased 2% against the ringgit to RM3.31. The sharp movement in latex prices and depreciating US dollar led to an Ebit margin contraction from 14% in 1Q to 11% in 2Q. This pushed Adventa's 2Q net profit down by 31% quarter-on-quarter.
Despite the earnings hiccups, we remain positive on Adventa's long-term prospects for capacity expansion and development of its other business segments which will turn it into a significant healthcare products supplier in the region. Our outperform call remains intact. However, the stock is no longer one of our top picks in view of the disappointing results and lower upside than Latexx Partners (outperform), whose premium products are driving earnings and Supermax (outperform) which is seeing strong earnings contributions from its own brand and distribution centres. ' CIMB Research, June 16
This article appeared in The Edge Financial Daily, June 17, 2010.
Company Name: ADVENTA BHD
Research House: CIMB
Adventa Bhd
(June 16, RM3.15)
Maintain outperform at RM3.17 with target price of RM4.45: Adventa's 2QFY10/10 results missed expectations as annualised 1H net profit made up only 75% of our estimate and consensus. The absence of dividends was no surprise.
Although 2H earnings should be stronger, we think the company will find it a stretch achieving our forecast given the time lag in price adjustments and delay in the delivery of equipment for its new plants.
Factoring in lower sales volumes, higher latex prices and a weaker US dollar, we cut our FY10-12 earnings by 9%-17%. This takes our target price from RM5.44 to RM4.45, still pegged to a 20% discount to Top Glove's target P/E of 16.5x. Despite the earnings hiccups, we are still positive on this rubber glove manufacturer and continue to rate it an outperform. Potential rerating catalysts for the stock include earnings improvement supported by the recovery in demand after the rubber wintering season as well as further capacity expansion.
As we noted in our 1QFY10/10 results note, Adventa anticipated margin compression in 2QFY10 due to the time lag in adjusting average selling prices (ASPs) for higher latex prices. Recall that latex prices went as high as RM7.72/kg in April compared to an average of RM5.91/kg in 1QFY10. On top of that, the US dollar eased 2% against the ringgit to RM3.31. The sharp movement in latex prices and depreciating US dollar led to an Ebit margin contraction from 14% in 1Q to 11% in 2Q. This pushed Adventa's 2Q net profit down by 31% quarter-on-quarter.
Despite the earnings hiccups, we remain positive on Adventa's long-term prospects for capacity expansion and development of its other business segments which will turn it into a significant healthcare products supplier in the region. Our outperform call remains intact. However, the stock is no longer one of our top picks in view of the disappointing results and lower upside than Latexx Partners (outperform), whose premium products are driving earnings and Supermax (outperform) which is seeing strong earnings contributions from its own brand and distribution centres. ' CIMB Research, June 16
This article appeared in The Edge Financial Daily, June 17, 2010.
No comments:
Post a Comment