Perstima likely to profit from better cost management, but remains at risk

According to Inter-Pacific Research, Perstima’s sales revenue for the quarter is in line with its forecast

By MARK RAO / Pic By

PERUSAHAAN Sadur Timah Malaysia Bhd (Perstima) could recognise higher earnings per share (EPS) for its current fiscal year, but remains at risk to competitive market conditions and price volatility.

Inter-Pacific Research Sdn Bhd tweaked its forecast for Perstima’s EPS for the financial year ending March 2020 (FY20) 6.7% higher, in light of the better production efficiency exhibited by the group.

It downgraded the company to ‘Hold’, but with a higher target price (TP) of RM5.20 from RM4.96 previously.

The TP, which is 7.2% higher than the company’s last closing price of RM4.85, is pegged to a 12 times price-earnings ratio and FY20 EPS of 43 sen.

“Risks include an increasingly competitive market, volatile raw material prices and volatile exchange rates,” the research firm wrote in its report published yesterday.

For its first quarter ended June 30 this year, Perstima’s net profit contracted 4.2% year-on-year (YoY) to RM11.63 million as lower sales volume offset the higher profit margins recognised.

This resulted in basic EPS for the quarter coming in at 11.71 sen.

The tinplate producer and supplier also recognised a lower revenue of RM224.76 million — down 5.9% YoY — due to the lower sales volume.

This was in spite of selling prices coming in slightly higher for the quarter.

Revenue from its Malaysian and Vietnam markets also declined due to the decrease in sales volume.

Malaysian operations were further hit by lower profit margins, though earnings from Vietnamese operations improved on higher selling prices and profit margins.

Perstima’s subsidiary company in the Philippines did not generate any revenue as it is still in the preliminary stage after being registered on Nov 22 last year.

The subsidiary company operated at a loss due to the preliminary costs related to rental and administration fees incurred for the quarter.

Inter-Pacific Research said Perstima’s sales revenue for the quarter is in line with its forecast, making up 24.4% of its whole year forecast.

“The company’s profit before tax beat our estimates and made up 28.9% of our whole-year forecast due to better than expected margins,” it added.

For operations in the Philippines, the research firm said the set-up of the plant is still underway and is slated to commence operations in the middle of the 2021 calendar year.

This will add to the group’s bottomline in FY21, barring any delays.

In an exchange filing earlier this week, Perstima said it expects the group’s operating environment to remain challenging and competitive, especially following the expiration of anti-dumping duties.

It added that the uncertainty and volatility of the ringgit’s performance against the US dollar, coupled with higher presence of imports in the market, will affect the company’s growth and profitability.

“To enhance the group’s performance, the management will continue its efforts to improve production efficiency, cost-saving measures and marketing efforts,” it said.

“In addition, the management will continue to leverage on its ability as the only producer of tin plate in Malaysia and Vietnam to provide better customer support, consistency in supply and flexibility in delivery.”

The stock closed seven sen or 1.4% higher at RM4.85 yesterday, giving it a market capitalisation of about RM481.6 million.