Superlon’s FY17 results good, FY18F profit forecast increases 24 per cent

KUCHING: Superlon Holdings Bhd’s (Superlon) financial year 2017 ( FY17) results have exceeded expectations and analysts have now accordingly increased FY18F profit forecast by 24 per cent.

Superlon’s FY17 net profit beat the research arm of MIDF Amanah Investment Bank Bhd’s (MIDF Research) forecast by 10 per cent.

MIDF Research noted that the company recorded the highest yearly and quarterly volume.

“Its gross profit margins improved further to 41.45 per cent in FY17 compared to 39.04 per cent in FY16,” the research arm said. “Net profit margin also climbed to 22.32 per cent in FY17 from 18.43 per cent a year ago.”

The research arm believed there is still room for volume growth as Superlon has yet to fully utilise the group’s new warehouse.

It estimated that there is at least another 10 per cent of room for capacity enhancement once the warehouse is fully utilised.

According to MIDF Research, Superlon announced that the group’s new plant in Vietnam is slated for operational commencement in FY19.

“We are not surprise by this development as Vietnam has been an important market for the group,” it said.

“The plant will be built on a 2.47acre land with capital expenditure for the plant budgeted at US$4 million (RM17 million).”

The research arm believed that funding will not be an issue given the company’s strong operating cashflow and net cash position, which allows Superlon to gear up.

On another note, MIDF Research pointed out that Superlon’s cash and cash equivalent has increased further to RM32.39 million from RM30.4 million a year ago.

“Net cash position is RM22.02 million as the company borrowed some money to fund its expansion,” the research arm said.

“The cash will come in handy for the company to fund its new plant in Vietnam at minimal financial costs as net cash exceeded the capital expenditure of RM17 million estimated.”

MIDF Research further noted that the company has also announced a dividend policy of 30 per cent net profit payout.

Although the company has been paying out dividends in the past five years with payout ratios going up to 50 per cent, the research arm was positive with this announcement that formalises Superlon’s commitment in creating shareholder value.

MIDF Research has thus increased its FY18F profit forecast by 24 per cent accordingly as the research arm took into consideration the higher volume sold and better profit margin.

“We also expect operating margin to improve further as a result of better economies of scale,” it said.

The research arm had also increased its dividend per share (DPS) forecast from 5.5 sen to six sen.

All in, MIDF Research maintained ‘buy’ and increased its target price to RM2.26 per share.

The research arm had increased its FY18F earnings per share forecast to 17.35 sen from 14 sen previously.

“We continue to like Superlon for its high cash position, superior profitability and capacity expansion plans,” the research arm concluded.