Posted on 07 Aug 2017
A casualty of cheaper imported tinplate products, Perusahaan Sadur Timah Bhd (Perstima), which controls about 60% of the local tinplate market, will likely see its profit dwindle further this year due to stiffer competition ahead.
According to analysts, it will be a strain on Perstima to try to pass on its increasing production costs to domestic consumers given the influx of cheaper imported tinplate products into Malaysia.
In its newly released first quarter results ended June 30, the tinplate maker posted a 76% drop in net profit of RM2.84mil from RM11.79mil in the same quarter last year despite its revenue rising by 34.7% to RM237.5mil.
This prompted investors to turn cautious, resulting in Perstima shares plunging from a 21-year high after a virtually uninterrupted gradual climb over the past five years.
Interestingly, within that period, the company’s shares had climbed four times to a recent high of RM8.10 a share just a day before the financial results were announced on Tuesday.
At the close of trading yesterday, Perstima share price settled five sen lower at RM6.29.
According to an analysts, low-profile Perstima had delivered good results in recent years with high returns and consistent dividend payouts to its shareholders.
Given its monopoly in the local tinplate industry and overseas exposure, Perstima has good fundamentals and offers good dividend yields.
“It has the potential to become a blue chip stock despite being an illiquid stock givenover 40% of its shares are tightly held by major Japanese shareholders - JFE Holdings Inc, Daiwa Corp and Mitsui,” adds the analyst.
For financial year ended March 31, 2017 (FY2017) Perstima posted a 8.26% increase in net profit of RM55.14mil from RM50.93mil last year. Revenue for the period under review was also higher at RM840.72mil versus RM743.4mil.
This was despite operating in an increasingly challenging environment where stiffer competition is coming from cheaper imported tinplate products.
The analyst also says that Perstima appears to have a strong balance sheet and has grown its cash reserves consistently over the last four years to total RM91.03mil.
In FY2017, cash reserves at Perstima fell by RM45.95mil. In addition, the company used more cash to support its operations than it earned, posting a cash flow loss of RM13.29mil.
In addition, the company used RM26.99mil on investing activities and also paid RM20.44mil in financing cash flows.
Year on year, both dividend per share and earnings per share, excluding extraordinary items, increased 5.26% and 8.26%, respectively.
Another positive trend is Perstima’s consistent dividend payments. For FY2017, a final dividend of 20 sen has been recommended.
“Among the containers and packaging companies, only a handful of them will consider paying a dividend.
“On a five-year annualised basis, both dividend per share (5.92%) and earnings per share (9.40) growth ranked in-line with the industry average relative to its peers,” adds the analyst.
Perstima’s new managing director Hiroaki Yano says the tinplate industry has become increasingly challenging.
“But the group will continue to deliver sustainable value to shareholders through revenue growth from new and existing customers as well as improving operational efficiencies through cost control measures,” says Yano in Perstima’s 2017 Annual Report.
Yano reckons the group is well positioned to expand its market presence in the region
Perstima will continue to focus on enhancing its core competencies and strive towards greater improvements, he says.
Perstima chairman Datuk Wee Hoe Soon @ Gooi Hoe Soon (pic) also says in the 2017 annual report that the tinplate price fromChina is expected to remain soft and competitive in the next financial year.
However, the group is aggressively pursuing cost improvement programmes and enhancement of operations efficiency to ensure the competitiveness of the group’s products.
Gooi says: “The group is continuously planning to renew machine with additional features in both plants in Malaysia and Vietnam.”
The group has completed the revamp of the pre-treatment and electrical facilities at its Vietnam operations during this financial year.
“With these facilities improvements, the group will be in a better position to meet the market requirement.
“The board will continue with its cost saving measures, sales andmarketing effort in order to maintain the profitability of the group,” adds Gooi.
Perstima currently has two business operations - in Malaysia and Vietnam.
Its plant in Johor undertake the manufacturing of tinplates with an installed production capacity of 200,000 tonnes per annum.
About 60% of the production is for local market with about 20% exported to the Asia Pacific and the Middle East.
As for its Vietnam operations, Perstima has established Perstima (Vietnam) Co Ltd - the first tinplate maker in the country in 2002.
It currently produces both tinplate and tin-free steel with a capacity of 120,000 tonnes per annum.
Perstima’s tinplates are mostly used as packaging material in sectors such as processed foods, edible oils, beer, other beverages and industrial products.
