Stock Name: LATEXXCompany Name: LATEXX PARTNERS BHD| Research House: CIMB | Price Call: HOLD | Target Price: 2.05 |
Latexx Partners Bhd
(Nov 22, RM1.86)
Maintain neutral at RM1.87 with revised target price of RM2.05 (from RM1.95): At only 64.8% of our FY11 estimate 9MFY11 earnings missed our forecast, leading to a cut in FY11 to FY13 earnings per share. But our target price (7.83 times CY13 price-earnings ratio) rises as we roll it over to end-CY12. We maintain our 'neutral' call. We prefer Hartalega for its solid fundamentals and undemanding valuations.
Revenue for 9MFY11 revenue fell by 10.1% year-on-year (y-o-y) to RM350.9 million due to lower output. Utilisation rates were only 60% in 3Q after touching 80% in 2Q. Higher rubber and nitrile prices led to a 7.7% y-o-y increase in operating costs to RM287 million. As a result of the lower revenues and higher costs, earnings before interest, tax, depreciation and amortisation (Ebitda) fell by 19.8% y-o-y to RM64 million and Ebitda margins contracted by 2.2 percentage points y-o-y to 18.2%. Core net profit fell by 28.1% y-o-y to RM43.1 million. During the quarter, the composition of Latexx's sales was 64% nitrile and 36% natural rubber. Some 51.6% of the group's sales were shipped to the US, 24.9% to Asia, 20.5% to the EU and the 3% balance to the Middle East and South America. Latexx declared a 2.5 sen dividend per share (DPS), which was expected.
Latexx is still cautious and is taking measures to improve efficiency and lower costs. The company will also retain its focus on the nitrile segment where growth is about 5% per year against a 1% y-o-y contraction for natural rubber. Also, nitrile gloves remain competitively priced as they are 25% cheaper to produce than natural rubber equivalents.
We expect an 18% quarter-on-quarter rise in 4Q net profit to RM15 million due to lower costs as the nitrile price has fallen 25% since Oct 1 and the natural rubber price has dropped 13%. We also expect Latexx to pay another 2.7 sen DPS after its 4Q results, taking FY11 DPS to 5.2 sen. ' CIMB Research, Nov 22
This article appeared in The Edge Financial Daily, November 23, 2011.
