Large cash reserves to enable Perstima to see through expansion plans
KUALA LUMPUR: Perusahaan Sadur Timah Malaysia (Perstima) Bhd’s (Perstima) large cash reserves will likely enable the group to see through its expansion plans, analysts say.
According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research), the group has consistently maintained a net cash position since financial year 2014 (FY14) and recently recorded the first quarter of 2018 (1Q18) net cash of RM42.7 million.
“Backed by this healthy position, we believe the group is capable of seeing through on its expansion plans while also allowing further room to sustain the low margin environment before eventually resorting to a price increase to keep cash afloat,” Kenanga Research said.
Going forward, Kenanga Research projected FY18 and FY19 sales to register at RM919.6 million, up nine per cent year on year (y-o-y), and RM955.5 million (up four per cent y-o-y), respectively.
The research arm noted that this will be driven by an increase in volume sales and average selling prices.
However, the research arm expected net profits to record 42 per cent lower y-o-y at RM32.1 million in FY18 and 70 per cent higher y-o-y at RM56.4 million in FY19 due to challenges such as significant cost pressures and the highly competitive market.
Meanwhile, better commodity prices and more efficient production methods could potentially materialise by FY19, it said.
On dividends, Kenanga Research noted that while the group has no formal dividend policy, Perstima’s historical pay-out ratios have on average lingered at circa 75 per cent.
The research arm estimated a slightly conservative pay-out ratio of circa 70 per cent, which translates to 23 sen and 39sen dividends at 3.8 per cent and 6.4 per cent yields, respectively.
All in, Perstima was issued a ‘not rated’ call by Kenanga Research with a fair value of RM6.05 per share.
“While outlook appears dim in the short term, we believe its potentially high FY19 dividend returns of 6.4 per cent may garner the interest of yield seeking investors to accumulate on weakness,” the research arm said.