SUPERLON HOLDINGS BHD

By MIDF Research Neutral (downgraded) Target price: RM2.36

THERMAL insulation materials manufacturer Superlon Holdings Bhd profit in the first quarter of FY18 was below expectation, mainly due to the result of surge in raw material prices.

According to MIDF Research, Superlon’s profit in the first quarter made up only 12.8% of the research house’s full year estimates.

Increase in raw material prices has led the company’s bottom line to fall by about 41.5% to RM3.54mil in the first quarter. While raw material prices have since stabilised, it is estimated to be 25% to 30% higher on a year-onyear basis.

“Hence, we expect Superlon’s gross profit margin to remain under pressure for the second quarter of FY18 but it might be a slight improvement compared to the first three months of FY18.

“We anticipate for the management to implement cost cutting measures to improve its margins while they are also expected to start talks with customers to gradually revise selling prices going forward,” said MIDF Research in note.

However, the research house anticipated that the thermal insulation materials manufacturer’s performance in the second half of FY18 would improve, coupled with normalising gross profit margin and with the help of sales from a new market.

“We gather that Superlon is already close to entering this new market and targets to sell products with higher average selling prices to this market.

“The company’s plan to start building a new factory in Vietnam is still intact. We believe that funding of the new plant is still not an issue as the company is still sitting on a net cashpile of RM15.85mil as at end-July, while the capital expenditure budgeted for the factory is RM17mil,” said the research unit.