Superlon experiences a mixed year in 2017
THE year 2017 has been generally mixed for thermal insulation materials manufacturer Superlon Holdings Bhd.
On one hand, it is largely a positive year for the shareholders as Superlon’s share price hit a record high of RM2.92 in September following a general uptrend in recent years.
The Main Market-listed counter has risen by nearly 74% over the last 12 months to RM2.05 as of Dec 22.
This brings its market capitalisation size to approximately RM325mil.
Dividend-wise, the stock offers a 12-month yield of 2.8%, higher than some large-cap dividend-plays on the bourse such as Nestle (M) Bhd and Fraser & Neave Holdings Bhd.
Over the last one year, Superlon’s dividend distribution has grown by almost 21%.
Earlier in June this year, the group has also adopted a dividend policy, which commits a payout ratio of at least 30% of its profit to the shareholders.
The policy is effective from the current financial year of 2018 (FY18).
On the other hand, Superlon recorded a drop in its bottom line in the first half of FY18 (1H18), primarily due to the high prices of raw material inventories which spilled over from the first quarter.
The company’s net profit fell by 35% yearon-year (y-o-y) to RM7.18mil.
However, Superlon’s revenue rose by 18% y-o-y to RM56.89mil in the period, driven by stronger performance of both of its manufacturing and trading segments.
Worth to be noted, the group’s revenue and profit hit record-high in FY17, as the top line surpassed the RM100mil for the first time.
This was on the back of increased sales volume and improved production methods, among others.
Moving forward, Superlon’s financial results are likely to recover in its second half of FY18, as the price of its main raw material is gradually stabilising.
Butadiene, the main component in the production of synthetic rubber, experienced a surge in price earlier this year.
Following tight supply in major markets and a strong demand for downstream products, the price of butadiene hit a 56-month high at US$3,070 per metric ton.
However, the price has since moderated to lower levels US$1,700 to US$2,000 per tonne.
In an interview with StarBizWeek, Superlon executive director Liu Han-Chao says that the group is expected to post a stronger earnings, moving forward.
“A stable raw material price would benefit us. Our first half results moderated but we look forward to a better second half,” he says.
Liu is the son of Superlon’s founder Jessica H. Liu, who is the single largest shareholder of the group. She has an equity interest of 22.58% in the company.
In its published note, MIDF Research projects the group’s gross profit margin to normalise to above 35% from 31.4% in H1’18.
It also indicated that Superlon’s high-price raw materials may have been used up in the first half given the 37% drop in its inventories.
Hence, the company’s older inventories are not likely to depress its earnings going forward.
The research house reiterates its “buy” call on the stock and left the target price unchanged at RM2.36.
Superlon, which controls a market share of 50% to 60% in Malaysia’s production of synthetic rubber insulation, aims to expand its production capacity and market reach moving forward.
The group is set to boost its production capacity by 500 tonnes before the end of FY18, as it continues to upgrade the equipment for its Malaysia plant.
It has allocated approximately RM5mil for this purpose.
On top of that, it is currently building a factory in Vietnam and plans to invest about US$4mil to establish the new entity.
Barring unforeseen circumstances, the Vietnam factory is expected to be ready for commissioning in FY19.
With the new capacity from its Vietnam plant, MIDF Research says that Superlon’s total capacity is expected to reach 10,500 tonnes per annum by end-FY19.
This would lift the company’s production capacity by 23% from the current level.
On Superlon’s plan to venture into the United States, Liu says that it is still in the preliminary stage.
Superlon has received the required certification to penetrate the US market.