AmInvestment Research has trimmed Luxchem Corp Bhd’ s FY17 earnings by 18% following disappointing 9MFY17 results. However, prospects for the company remain intact, it said.
Luxchem’s net profit of RM9mil was up 4% q-o-q but lower by 10% y-o-y. For 9mFY17, the groups net profit was 4% higher y-o-y on the back of 18% y-o-y expansion in revenue. The 9MFY17 results were 63% and 66% of FY17F’s full-year forecasts.
The research firm reiterated its Buy call on Luxchem Corp with an unchanged fair value of RM0.90 sen a share based on 15x FY18F fully diluted earnings per share.
AmInvestment Research said the disappointing results came from a lower-than-expected improvement in pre-tax margin.
“We had earlier expected improvements of a bigger quantum due to a recovery in chemical prices, including those of butadiene and unsaturated polyester resins (UPR). However, management said that the increase in the public reference price of chemical products was not well received by the market.”
However, the research firmed noted that the revenue synergies from Luxchem’s new Transform Master saw a quick capacity fill-up from 80% utilisation in H1FY17 to full capacity.
Luxchem has indicated that the it is considering expanding TMSB’s capacity further within the next two years in addition to the capacity that is coming onstream by year-end.
“We view this positively as TMSB’s products are largely sold to glove companies, which are experiencing sturdy growth,” said AmInvestment Research.