Luxchem’s 3Q earnings to rise on better trading margins
KUCHING: Luxchem Corporation Bhd’s ( Luxchem) earnings has been projected by analysts to pick up sequentially in the third quarter of financial year 2017 (3QFY17) on the back of better trading margins.
From AmInvestment Bank Bhd’s ( AmInvestment Bank) channel checks, chemical prices in general have been recovering since August.
AmInvestment Bank noted that butadiene prices have trended up for six consecutive weeks from US$ 915 per metric tonne ( MT) to US$ 1,555 per MT currently while prices of other related raw materials such as PVC resins and styrene have also recovered since August.
The research firm also noted that the chemical products mentioned are used in the production of some of Luxchem’s trading products such as nitrile latex and styrenebutadiene rubber.
“As such, we believe earnings will pick up sequentially in 3QFY17 on the back of better trading margins,” the research firm said.
It added that this would make up for the earnings shortfall in 2QFY17 that stemmed from a sharp drop in chemical prices in the first half of FY17 (1HFY17).
AmInvestmentBankhighlighted that Luxchem is striving to grow the group’s export markets, especially the higher growth regions like Indonesia and Vietnam.
The research firm said that management’s effort is already coming to fruition evinced by a compound annual growth rate (CAGR) of 19 per cent in Luxchem’s export revenue from FY13 to FY16, outpacing the growth of the group’s domestic sales (seven per cent CAGR).
Overall, AmInvestment Bank continued to like Luxchem because of the group’s good earnings visibility backed by large clientele (approximately 1,000 customers) and wide applications of its chemical products.
The research firm also liked Luxchem due to the group’s exposures in industries with stable and commendable growth such as its latex and PVC segments, the demand of which is tied to the glove and construction sectors respectively.
Capac ity expansions in Luxchem’s manufacturing arms, Luxchem Polymer Industries (up 33 per cent) and Transform Master Sdn Bhd (up 25 per cent) also factored into the research firm’s favourable view on the group.
As such, AmInvestment Bank reiterated its ‘ buy’ recommendation on Luxchem and revised its fair value to RM0.91 per share from RM2.74 per share to account for the effect of the oneinto-three share split, which was completed on September 8, 2017.