Stock Name: PELIKAN
Company Name: PELIKAN INT.CORPORATION BHD
Research House: ECMLIBRA
Pelikan International Corp Bhd
(May 31, RM1.01)
Upgrade to 'hold' at RM1.02 with target price of RM1: Pelikan International Corp's (PICB) 1QFY11 results were disappointing, with net profit of RM7.2 million making up a mere 11.2% of our FY11 forecast and 10.4% of consensus. Herlitz continued to register a loss and cost synergies from the merger are taking longer than expected to materialise.
Significant top line growth of 68.9% for 1QFY11 came largely from the consolidation of Herlitz (absent in 1QFY10). Excluding Herlitz, PICB's revenue would have dipped by circa 12% year-on-year, evidence of weaker eurozone demand due to concerns over high energy prices, weak economic recovery and Greece's debt crisis.
Core net profit declined by 29.4% due to: (i) a '3.7 million (RM16.04 million) net loss incurred by Herlitz; (ii) strengthening of the ringgit against the euro (the euro:ringgit exchange rate was 4.09 in 1QFY11 against 4.82 in 1QFY10) and 86% of group revenue came from Europe; (iii) steeper input costs particularly for petrol-based raw materials (resin, pigments); and (iv) slower-than-expected rationalisation of Herlitz and PICB's operations.
The consolidation of Herlitz operations with PICB's, and the resulting cost savings is taking more time than expected although we do expect mild earnings recovery, particularly in 3QFY11 due to a seasonal spike in sales from the start of the European school term.
We expect a slight improvement in FY11 profit margins to come from internal productivity initiatives such as the moving of inkjet cartridge refill lines from China and the Czech Republic, and manufacturing of certain inks from Germany and Switzerland to PICB's new production facility in Glenmarie, Selangor.
We cut our FY11/12 net profit forecast by 18% to 25% to take into account the sluggish sales growth in Europe, stronger ringgit and higher raw materials cost. We are lowering our assumptions for the average FY11 euro:ringgit exchange rate to 4.08 (from 4.09) and US dollar:ringgit rate to 2.99 (from 3.0). We also factor in a 9% increase in raw material prices (from 7% previously).
We maintain our FY11 dividend per share estimate of 2 sen, which translates into a 21.4% payout ratio and a 2% net yield.
Although the outlook is still negative, the share price has already fallen to trough price-to-book (P/B) valuation. We believe there is limited downside and upgrade from 'sell' to 'hold'.
Our target price of RM1 is retained as we change our valuation method to 0.5 times FY11 P/B (a historical low for PICB) from eight times FY11 price-earnings ratio previously. ' ECM Libra Research, May 31
This article appeared in The Edge Financial Daily, June 1, 2011.
Company Name: PELIKAN INT.CORPORATION BHD
Research House: ECMLIBRA
Pelikan International Corp Bhd
(May 31, RM1.01)
Upgrade to 'hold' at RM1.02 with target price of RM1: Pelikan International Corp's (PICB) 1QFY11 results were disappointing, with net profit of RM7.2 million making up a mere 11.2% of our FY11 forecast and 10.4% of consensus. Herlitz continued to register a loss and cost synergies from the merger are taking longer than expected to materialise.
Significant top line growth of 68.9% for 1QFY11 came largely from the consolidation of Herlitz (absent in 1QFY10). Excluding Herlitz, PICB's revenue would have dipped by circa 12% year-on-year, evidence of weaker eurozone demand due to concerns over high energy prices, weak economic recovery and Greece's debt crisis.
Core net profit declined by 29.4% due to: (i) a '3.7 million (RM16.04 million) net loss incurred by Herlitz; (ii) strengthening of the ringgit against the euro (the euro:ringgit exchange rate was 4.09 in 1QFY11 against 4.82 in 1QFY10) and 86% of group revenue came from Europe; (iii) steeper input costs particularly for petrol-based raw materials (resin, pigments); and (iv) slower-than-expected rationalisation of Herlitz and PICB's operations.
The consolidation of Herlitz operations with PICB's, and the resulting cost savings is taking more time than expected although we do expect mild earnings recovery, particularly in 3QFY11 due to a seasonal spike in sales from the start of the European school term.
We expect a slight improvement in FY11 profit margins to come from internal productivity initiatives such as the moving of inkjet cartridge refill lines from China and the Czech Republic, and manufacturing of certain inks from Germany and Switzerland to PICB's new production facility in Glenmarie, Selangor.
We cut our FY11/12 net profit forecast by 18% to 25% to take into account the sluggish sales growth in Europe, stronger ringgit and higher raw materials cost. We are lowering our assumptions for the average FY11 euro:ringgit exchange rate to 4.08 (from 4.09) and US dollar:ringgit rate to 2.99 (from 3.0). We also factor in a 9% increase in raw material prices (from 7% previously).
We maintain our FY11 dividend per share estimate of 2 sen, which translates into a 21.4% payout ratio and a 2% net yield.
Although the outlook is still negative, the share price has already fallen to trough price-to-book (P/B) valuation. We believe there is limited downside and upgrade from 'sell' to 'hold'.
Our target price of RM1 is retained as we change our valuation method to 0.5 times FY11 P/B (a historical low for PICB) from eight times FY11 price-earnings ratio previously. ' ECM Libra Research, May 31
This article appeared in The Edge Financial Daily, June 1, 2011.
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