Perstima to face intense competition from China
KUALA LUMPUR: Malaysia’s biggest tin plate supplier, Perusahaan Sadur Timah Malaysia Bhd (Perstima) with a 60 per cent hold on the local market share is expected to continue experiencing intense competition arising from China’s exports of tin plates to Malaysia.
In an initiation report, research house Alliance DBS Research Sdn Bhd (Alliance DBS Research) guided that the recent increased competition from China imports had cause the group to experience margin erosion as they posted disappointing first half of financial year 2018 (1HFY18) earnings of RM6.4 million.
Year over year (y-o-y) this was a whopping -75 per cent decrease in earnings as the group was unable to pass on production cost hikes to customers as it needed to maintain its price competitiveness to prevent China exports from taking over its market share in the local market.
While management is striving to expand its overseas markets to sustain its long-term growth, Alliance DBS Research reckons that the overseas contributions are unlikely to make up for the earnings shortfall in the local markets.
“Given that the latter (local market) contributes more than 60 per cent of the group’s revenue,” explained the research house.
That being said however, the research house still notes that there are many upsides to the group.
For one, the group possesses a strong balance sheet and long established customer relationships of over 15 years that will help it withstand challenging operating environments for an extended period of time.
“Compared to imported tin plates mainly from China, Perstima has several competitive edges such as close proximity to its customers in Malaysia, superior sales and after sales services and the ability to customise its products to meet customer preferences.”
All in, Alliance DBS Research guides that are adopting a conservative stance for the time being, in view of its cloudy earnings prospects and lack of coverage from other brokers.
Initiating the stock at a ‘fully valued’ rating with a fair value of RM4, the research house guides that potential upwards rerating catalysts include stronger than expected recovery in earnings due to strengthening of profit margins and higher contributions from overseas markets. “Also, the non-extension of anti-dumping duties for imported tin plates could deter Perstima from having more pricing power over its products,” added Alliance DBS Research.