Pelikan looks set for a turnaround year — Kenanga Research

KUCHING: Pelikan International Corporation Bhd (Pelikan) looks set for a turnaround year, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) observes, after the group had spent five consecutive years in the red.

According to Kenanga Research, Pelikan has undergone a lengthy period of streamlining its European assets and rationalising its business operations.

The research arm noted that Pelikan has completed the injection of the group's core stationery sales and distribution assets into its 70.9 per cent-owned Germanlisted subsidiary, Herlitz ( currently known as Pelikan AG).

“This move has begun to bear fruit, with the group having streamlined all the key stationery organisations and assets worldwide to create a focused stationery organisation under the helm of Pelikan AG,” it said.

Kenanga Research highlighted that with a leaner business, Pelikan's focus has now shifted to improving margins with better product offerings, increasing market shares within the group's core European markets and growing revenue, brand awareness and product range within Latin America and Asian regions.

“We see some initiatives already being taken, which include the opening of its flagship retail store in the Gardens, Mid Valley City as well as tie-ups with distributors to expand their sales channels,” the research arm said.

“At the same time, we understand the Group is addressing improvements in the remaining printer consumable business via the adaptation of distribution channels and product offering in addition to increasing utilisation rates for its production facilities via outsourcing services.”

Additionally, Kenanga Research saw the potential for dividends to resume after a four-year hiatus and have estimated dividends at 1.2 to 1.3 sen for financial year 2017-2018 (FY17-18) based on a conservative pay-out ratio of 15 per cent, implying a dividend yield of 1.3 to 1.4 per cent.

While the research arm did not anticipate heavy capital expenditure ( capex) plans, it believed that the bulk of free cashflow will be used for repaying bank borrowings given the high net gearing of 0.65-fold as at the third quarter of 2016 (3Q16).

Kenanga Research has projected the group to register FY16 net profit of RM34.6 million before growing to RM42.1 million to RM48.7 million for FY17/FY18 (21.7 per cent/15.8 per cent).

Despite the potential turnaround in earnings, Kenanga Research still lowered its call from “trading buy” to “non rated” as the current market price is traded within its valuation range.

It noted that Pelikan should be valued within the range of RM0.88 to RM1 per share.