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Friday, December 24, 2010

Adventa - Not a firm grip on 4Q10 headwinds (CIMB)

Below; maintain OUTPERFORM. At 82% of our forecast and 83% of consensus numbers, Adventa’s FY10/10 core net profit which excludes a RM7.6m one-off tax writeback was below expectations due to higher raw material costs and a weak US$. To our surprise, Adventa declared a first and final tax-exempt dividend of 7 sen, much higher than our 4 sen forecast, prompting us to raise our FY11-12 DPS estimates by 3.6-4.5 sen. After accounting for higher latex cost and a weaker US$, we lower our FY11-12 EPS forecasts by 10-11%. This reduces our target price from RM3.79 to RM3.14, pegged to an unchanged 10.2x CY11 P/E or a 30% discount to Top Glove’s target P/E of 14.5x.

We continue to rate Adventa an OUTPERFORM given the potential re-rating catalysts of 1) higher OBM glove sales, 2) establishment of own distribution channels, and 3) better product mix from higher nitrile sales.

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