Seng Fong Holdings Berhad - Impacted by forex fluctuations
Fri, 15-Nov-2024 07:06 am
by Jayden Tan • Apex Research

Counter

SENFONG (5308)

Target Price (RM)

1.90

Recommendation

Buy

Summary

  • 1QFY25 core net profit at RM18.0m (+117.0% yoy, +9.1% qoq) came in line with our expectations at 25.0% of our full-year forecast of RM72.2m.

  • Looking ahead, we expect the earnings growth to remains robust, driven by increased capacity and demand.

  • We maintain our BUY recommendation with an unchanged target price of RM1.90, based on a PE multiple of 19.0x applied to the FY26F EPS of 10.0 sen.

 

Company Update

  • Results review. In 1QFY25, Seng Fong reported a net profit of RM13.7m, representing a 65.1% yoy increase but a -17% qoq decline. The latter was primarily attributed to forex fluctuations during the quarter, resulting in a RM3.7m loss in foreign exchange derivatives and a RM0.6m unrealised loss. Revenue for the quarter, however, grew 64.1% yoy and 8.7% qoq to RM359.9m, driven by higher sales volumes and ASP. A dividend of 1.25 sen per share for the quarter was declared.

     

  • CNP in line with expectation. Core net profit, excluding derivative and forex losses, stood at RM18.0, aligns with our projections, accounted for 25.0% of our full-year net profit forecast of RM72.2m.

     

  • Operations Highlights. In 1Q25, sales were driven by higher volumes and ASP, with 47.3k MT sold, marking a 4.5% qoq increase and a 35.6% yoy rise. ASP improved to RM7.6k/MT, up 4% qoq and 21% yoy, supported by higher SMR prices.

     

  • Industry Highlights. Rubber prices have surged due to supply constraints from adverse weather conditions that have curtailed output. We anticipate prices will remain elevated, driven by increased demand from China's stimulus plans aimed at boosting economic and manufacturing activities. The combination of firm demand coupled with existing supply shortages, is creating favourable outlook.

     

  • Outlook. Looking ahead, we expect the Group to gradually increase its annual capacity to 200k in FY25F and 210k in FY26F, driven by the accelerated adoption of Smart Rubber manufacturing equipment across its three plants. One plant has already commenced trial runs and is on track to begin operations by the end of CY24. The launch of Smart manufacturing machines comes at an opportune time, enhancing capacity to meet expected rising demand, particularly from China.

     

  • Valuation. With the reported results coming within expectations, we kept our forecast unchanged. We reiterate our BUY recommendation with an unchanged target price of RM1.90, based on a 19.0x PER on FY26 EPS of 10.0 sen.

     

  • Risk. Delays in capacity expansion plans and a longer-than-expected timeline for integrating Smart equipment into production, along with fluctuations in forex and commodity prices, pose potential challenges.

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Disclaimer

The report is for internal and private circulation only and shall not be reproduced either in part or otherwise without the prior written consent of Apex Securities Berhad. The opinions and information contained herein are based on available data believed to be reliable. It is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered by this report.

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.

Apex Securities Berhad does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against Apex Securities Berhad. Apex Securities Berhad may from time to time have an interest in the company mentioned by this report. This report may not be reproduced, copied or circulated without the prior written approval of Apex Securities Berhad.

Market Mover
Settlement Rates
Currency Buy Rates (RM) Sell Rates (RM)
USD 4.455268 4.488135
EUR 4.716585 4.723137
CNY 0.616518 0.616862
HKD 0.572409 0.576643
SGD 3.318330 3.343262