Normalisation of logistics costs boon for Superlon

PETALING JAYA: Fluctuations in raw material prices will continue to have an impact on manufacturer of high quality polyethylene pipes Superlon Holdings Bhd’s earnings.

MIDF Research said other factors were unfavourable exchange rates and prolonged global supply chain issues which could cause shipping costs to export markets to remain high.

However, a gradual normalisation of logistics costs would support the recovery of demand from the export markets which have historically contributed more than 50% of the group’s total revenue, said the research house.

It has revised downwards its financial year (FY) 2023 and 2024 earnings estimates by 39% and 26% as it adjusted its margin assumptions to account for the elevated material costs.

Freight costs have started to come down, although they are still higher relative to prepandemic levels, according to the research house.

It has maintained its “buy’’ call on Superlon with a revised target (TP) price of 84 sen a share from RM1.02 earlier.

It would roll over its valuation year to FY24 and it derived the TP by pegging its revised FY24 earnings per share to an unchanged price earnings ratio (PER) of 12 times.

Superlon reported core net profit of Rm1mil in the first quarter of FY2023 (1Q23), which came in below MIDF’S expectations at only 8% of its full-year estimates.

The deviation was mainly due to the higher-than-expected material costs.

However, it recorded higher revenue of Rm29.8mil (up 16.1% quarter-on-quarter (q-o-q) in 1Q23 led by the higher demand from both its domestic and export markets as more projects and installation jobs resumed.

Nonetheless, the profit margin was eroded by higher raw material cost and higher contribution from lower margin markets, hence the group’s core CNP declined to Rm1mil (down 10% q-o-q), it said.

MIDF said on a yearly basis, revenue saw a significant jump of 55.3% y-o-y as both the insulation and trading divisions made higher sales on the back of the easing of restrictions and lockdowns in both the domestic and export markets.

This was further supported by a favourable foreign exchange environment.

However, Superlon’s core CNP dropped significantly by 51.1% y-o-y mainly attributed to higher material and freight costs and higher contribution from trading sales which is a lower margin segment.