MSPORTS (FV RM0.89 - BUY) FY11 Results Review: Walking With Confidence

Stock Name: MSPORTS
Company Name: MULTI SPORTS HOLDINGS LTD

Research House: OSK

Price Call: BUY

Target Price: 0.89

Multi Sports'  FY11earnings came in  above our  estimates. The  stronger performance was underpinned bybetter demand for MD2 products whose revenue surged by 77.4% y-o-y. Marginscontinue to contract on the back of higher input costs and depreciationincurred for production expansion, netting off the effect of higher  selling prices.  A tax-exempt final dividend of 3.11 sen per share was proposed. MaintainBUY with a new FV of RM0.89 as we revise our FY12 earnings upward toincorporate the stronger results.

Surpassingexpectations. The group's full-year revenue and net profit came in stronglyat RM430.3m and RM80.6m, representing a stellar y-o-y growth of 40.5% and 16% respectively.The better turnover was buoyed by the sales of EVA MD2 products, which surged77.4% y-o-y, offsetting  the weakerperformance of the MDI segment which registered a negative 12.1% growth. Therevenue for TPR and RB rose by 4.1% and 6.4% respectively. The sales volume forMD2 shoe soles soared 62.9% y-o-y, but this was offset by declining salesvolumes for TPR (-3.9%), RB (-12.8%) and MD1 (-17.8%) products, bringing thetotal sales volume growth to 26.2% y-o-y.

Slimmer margins.  Although the average selling price increasedfrom RMB19 to RMB21.16 per pair, the gross profit margin declined by 2.2% to30.2%, no thanks to higher production costs pertaining to labour, raw materialand depreciation arising from its production expansion. Similarly, the EBITmargin narrowed to 25.8% from 27.6%. The group's net margin trended lower aswell by 4%, mainly due to: (i) lower gross margin, (ii) the absence of regulartax reductions and exemption, (iii) higher depreciation expenses due to  capacity expansion, and  (iv) recognition of TDR listing expenses and additionalprovisions for withholding tax.

Maintain BUY.  We revise up our FY12 earnings by 4.7% to factor in the stronger demand forMD2 products as well as take this opportunity to introduce our FY13 forecast ofRM107.9m. The FV is bumped up to RM0.89 pegged to 5x FY12 EPS. Maintain BUY asthe group continues to deliver satisfactory results and  its share price  is currently trading at a cheap PER of 2x. A re-ratingfor China-based companies, including Multi Sports, is on the cards as the IPOof China Stationery Limited (CSL) was well-received, with its share trading ata much higher PER of 6.9x.

Source: OSK188