1 June 2015
Exports spur topline growth
Results Note
Tong Herr’s 1Q15 core earnings of RM7.3m (-12.7% yoy) came in
within our expectation, accounting for 22% of our full year forecast.
However, revenue grew by 19% yoy on stronger demand from Japan
and the US. No change to earnings and TP to RM2.50. Maintain BUY.
1Q15 core earnings came in within our expectation
In 1Q15, Although Tong Herr’s revenue grew by a modest 19% yoy while
core net profit fell by 12.7% to RM7.3m as EBIT margin shrank by 3.4ppt
yoy. However, core earnings is still within our expectation accounting for
22% of our full year forecast. No dividend was declared (1Q14: Nil)
Tong Herr
THR MK
Sector: Building Materials
RM2.15 @ 29 May 2015
BUY (maintain)
Upside 14%
Export to developed countries spurs revenue growth
The strong revenue growth was attributed to both its stainless steel Price Target: RM2.50
fasteners segment (+26% yoy) and aluminium segment (+3% yoy). The Previous Target: RM2.50
stronger demand for its stainless steel products is in tandem with the
improving economic outlook in the US. Demand from the US improved by
31% yoy, Japan by 59% yoy and from Germany at 4% growth. The
aluminium segment, which is predominantly for domestic consumption grew
by a modest 9% yoy.
Mixed global outlook
The group is highly export-dependent with more than 60% of its sales
derived from the US and European markets. Prospects for stainless steel
products globally however remain uncertain, especially in Europe. Although
demand from Europe has shown some improvement from its trough, growth
is still subdued. However, Tong Herr will benefit from the economic Price Performance
improvement in the US.
1M
Maintain BUY but with an unchanged target price of RM2.50
We make no changes to our FY15-17E forecast. Also unchanged is our
target price of RM2.50, which is based on an unchanged 10x CY16 EPS.
Maintain BUY. Tong Herr will benefit from the US economic upturn as well
as the strengthening of the US$. Risk to our recommendation includes
weaker-than-expected demand especially from the developed markets.
Earnings & Valuation Summary
FYE 31 Dec
2013
Revenue (RMm)
520.0
EBITDA (RMm)
45.0
Pretax profit (RMm)
30.8
Net profit (RMm)
17.8
EPS (sen)
14.0
PER (x)
15.7
Core net profit (RMm)
17.8
Core EPS (sen)
14.0
Core EPS growth (%)
21.6
Core PER (x)
15.7
Net DPS (sen)
5.0
Dividend Yield (%)
2.3
EV/EBITDA (x)
6.8
2014
601.4
75.1
52.4
34.1
26.7
8.2
34.1
26.7
91.1
8.2
6.0
2.7
3.8
Chg in EPS (%)
Affin/Consensus (x)
2015E
635.1
74.3
56.2
34.3
26.9
8.2
34.3
26.9
0.7
8.2
6.0
2.7
3.3
2016E
669.5
76.8
56.8
34.2
26.8
8.2
34.2
26.8
-0.3
8.2
6.0
2.7
3.7
2017E
706.0
78.9
59.5
35.6
27.9
7.9
35.6
27.9
4.1
7.9
6.0
2.7
3.6
NA
NA
NA
Absolute
Rel to KLCI
+0.0%
+5.7%
3M
+1.0%
+4.7%
12M
+1.0%
+7.6%
Stock Data
Issued shares (m)
Mkt cap (RMm)/(US$m)
Avg daily vol - 6mth (m)
52-wk range (RM)
Est free float
BV per share (RM)
P/BV (x)
Net cash/ (debt) (RMm) (1Q15)
ROE (2015F)
Derivatives
Shariah Compliant
126.4
271.8/73.8
0.0
1.88-2.44
27%
2.63
0.80
(38.25)
9.1%
No
Yes
Key Shareholders
All Star International
Amanah Raya Trustee
Capital Dynamics Asset
62.2%
3.7%
2.8%
Source: Affin Hwang, Bloomberg
Sharifah Farah
(603) 2145 0327
[email protected]
Source: Company, Affin Hwang estimates, Bloomberg
Affin Hwang Investment Bank Bhd (14389-U)
(Formerly known as HwangDBS Investment Bank Bhd)
Page 1 of 3
1 June 2015
Fig 1: Results Comparison
FYE 31 Dec (RMm)
1Q15
Revenue
Op costs
EBIT
EBIT margin (%)
Int expense
Int and other income
EI
Associates
Pretax profit
Tax
Tax rate (%)
MI
Net profit
EPS (sen)
Core net profit
158.8
QoQ
% chg
5.9
YoY
% chg
18.9
(146.8)
12.0
7.6
(0.5)
5.3
0.0
(2.4)
14.4
(3.3)
22.6
(3.8)
7.3
5.8
7.3
(0.2)
327.3
+5.7ppt
(10.6)
222.0
nm
nm
271.1
nm
nm
(446.7)
123.9
123.9
123.9
23.4
(17.8)
(3.4 ppt)
(2.2)
426.0
nm
(531.4)
(2.5)
7.9
nm
13.8
(12.7)
(12.7)
(12.7)
Comment
1Q15: Stainless steel segment (+26%); aluminum segment
(+3%)
Improved efficiency and better cost management
Total borrowings stood at RM169m (-12% yoy)
Higher demand from US and Japan
Free-tax rate benefits previously enjoyed has lapsed
Inline; accounts for 22% of full year forecast
Source: Affin Hwang, Company data
Affin Hwang Investment Bank Bhd (14389-U)
(Formerly known as HwangDBS Investment Bank Bhd)
Page 2 of 3
1 June 2015
Equity Rating Structure and Definitions
BUY
Total return is expected to exceed +10% over a 12-month period
HOLD
Total return is expected to be between -5% and +10% over a 12-month period
SELL
Total return is expected to be below -5% over a 12-month period
NOT RATED
Affin Hwang Investment Bank Berhad does not provide research coverage or rating for this company. Report is intended as information only and not as a
recommendation
The total expected return is defined as the percentage upside/downside to our target price plus the net dividend yield over the next 12 months.
OVERWEIGHT
Industry, as defined by the analyst’s coverage universe, is expected to outperform the KLCI benchmark over the next 12 months
NEUTRAL
Industry, as defined by the analyst’s coverage universe, is expected to perform inline with the KLCI benchmark over the next 12 months
UNDERWEIGHT
Industry, as defined by the analyst’s coverage universe is expected to under-perform the KLCI benchmark over the next 12 months
This report is intended for information purposes only and has been prepared by Affin Hwang Investment Bank Berhad (14389-U) (formerly known as HwangDBS Investment Bank
Berhad) (“the Company”) based on sources believed to be reliable. However, such sources have not been independently verified by the Company, and as such the Company does
not give any guarantee, representation or warranty (express or implied) as to the adequacy, accuracy, reliability or completeness of the information and/or opinion provided or
rendered in this report. Facts, information, views and/or opinion presented in this report have not been reviewed by, may not reflect information known to, and may present a differing
view expressed by other business units within the Company, including investment banking personnel. Reports issued by the Company, are prepared in accordance with the
Company’s policies for managing conflicts of interest arising as a result of publication and distribution of investment research reports. Under no circumstances shall the Company, its
associates and/or any person related to it be liable in any manner whatsoever for any consequences (including but are not limited to any direct, indirect or consequential losses, loss
of profit and damages) arising from the use of or reliance on the information and/or opinion provided or rendered in this report. Any opinions or estimates in this report are that of the
Company, as of this date and subject to change without prior notice. Under no circumstances shall this report be construed as an offer to sell or a solicitation of an offer to buy any
securities. The Company and/or any of its directors and/or employees may have an interest in the securities mentioned therein. The Company may also make investment decisions or
take proprietary positions that are inconsistent with the recommendations or views in this report.
Comments and recommendations stated here rely on the individual opinions of the ones providing these comments and recommendations. These opinions may not fit to your financial
status, risk and return preferences and hence an independent evaluation is essential. Investors are advised to independently evaluate particular investments and strategies and to
seek independent financial, legal and other advice on the information and/or opinion contained in this report before investing or participating in any of the securities or investment
strategies or transactions discussed in this report.
Third-party data providers make no warranties or representations of any kind relating to the accuracy, completeness, or timeliness of the data they provide and shall not have liability
for any damages of any kind relating to such data.
The Company’s research, or any portion thereof may not be reprinted, sold or redistributed without the consent of the Company.
The Company, is a participant of the Capital Market Development Fund-Bursa Research Scheme, and will receive compensation for the participation.
This report is printed and published by:
Affin Hwang Investment Bank Berhad (14389-U)
(formerly known as HwangDBS Investment Bank Berhad)
A Participating Organisation of Bursa Malaysia Securities Bhd
Chulan Tower Branch,
3rd Floor, Chulan Tower,
No 3, Jalan Conlay,
50450 Kuala Lumpur.
www.affinhwang.com
Email : [email protected]
Tel : + 603 2143 8668
Fax : + 603 2145 3005
Affin Hwang Investment Bank Bhd (14389-U)
(Formerly known as HwangDBS Investment Bank Bhd)
Page 3 of 3