Seng Fong Holdings Berhad - Record breaking performance
Wed, 14-Aug-2024 08:28 am
by Jayden Tan • Apex Research

Counter

SENFONG (5308)

Target Price (RM)

1.90

Recommendation

Buy

Summary

4QFY24 core net profit at RM16.5m, bringing FY24 core net profit at RM57.3m came in line with our expectations. 

Earnings growth will be driven by gradual increase in capacity and margin expansion via integration of Biomass system and Smart equipment. 

Maintained our BUY recommendation with an unchanged target price of RM1.90, based on a P/E multiple of 19.0x applied to the FY26F EPS of 10 sen.

 

Results Review

  • Results review. In 4QFY24, Seng Fong reported a core net profit of RM16.5m, marking a significant jump of 454.1% yoy and 8.9% qoq, primarily driven by higher sales volume. Revenue for the quarter grew 38.7% yoy and 10.3% qoq to RM331.3m. A dividend of 1.5 sen per share, for the quarter was declared.

  • Meeting expectations. Full-year FY24 core net profit of RM57.3m accounted for 101% of our FY24 forecast, while revenue came in at 103% of our projection.

  • Operations Highlights. In 4Q24, sales were bolstered by higher volume and average selling price (ASP), with 45.2k metric tons (MT) sold during the quarter, reflecting a 6% qoq and 18.7% yoy improvement. ASP for the quarter also rose, reaching RM7,300/MT (+4% qoq and +18% yoy). Utilisation rate for 4Q24 remained firm at 95% of the annualised capacity of 190k MT. Additionally, diesel costs continued to decline, amounting to just RM1.0m for the quarter, representing a decrease of 23% qoq and 65% qoq, following the integration of the Biomass System into their operations.

  • Industry Highlights. In 1H24, Malaysia's natural rubber export volume increased by 14% yoy, driven primarily by the resurgence of manufacturing activities in China and growing demand in India. Future growth will be fueled by the rise in vehicle production and the development of electric vehicles globally.

  • Outlook. Looking ahead, we anticipate that the Group will gradually ramp up annual capacity to 200k MT in FY25F and 210k in FY26F. Growth will be driven by enhanced operational efficiency through the addition of more working shifts and the implementation of Smart Rubber manufacturing equipment across all three plants. Additionally, the full utilisation of the Biomass system and the integration of Smart equipment into operations are expected to contribute to margin expansion through overhead and manpower costs savings.

  • Valuation. We maintain our earnings forecast as the reported figures were largely in line. We reiterate our BUY recommendation with an unchanged target price of RM1.90, based on a 19.0x PER on FY26 EPS. This valuation is justified by the Bursa Industrial Index, which is currently trading at a 21.0x PER.

  • Risk. Delays in capacity expansion plans and a longer-than-expected timeline for integrating Smart equipment into production.

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Opinions, estimates and projections in this report constitute the current judgment of the author. They do not necessarily reflect the opinion of Apex Securities Berhad and are subject to change without notice. Apex Securities Berhad has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.

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