Tuesday, March 22, 2011

RHB Research: Fair value for Great Wall Plastics at 96 sen

KUALA LUMPUR: RHB Research Institute has an indicative fair value for Great Wall Plastics at 96 sen, based on target FY11 PER of 8.0 times, which is a 10% premium over its peers weighted average FY11 PER.

'We believe the premium is fair given GWP's clarity in terms of its topline growth projections, and to a certain extent its earnings visibility,' it said on Tuesday, March 22.

GWP produces cast films and blown films. Cast films are low margin, low value-added, high volume products, while blown films are the opposite with high margins, high value-added, low volume products.

Blown films accounted for 68.1% (RM210m) of GWP's revenues, and about 75% (RM18.2m) of PBT translating into a PBT margin of 8.7%.

Cast film accounted for 32.2% (RM99.3m) and about 25% (RM6m) of GWP's FY10 revenues and PBT respectively, translating to a PBT margin of 6%.

'We understand that by end-FY11, GWP would have a total estimated combined production capacity of 62,000 tonnes (2010: about 47,100 tonnes).

'Based on our estimates, after accounting for the RM21m planned capex, and an extra RM10m in capex (assuming GWP does decide to increase its production capacity more than planned), we believe GWP could pay dividends in the range of 30%-40% of net profit in FY11, without having to increase its net gearing level from 0.1 times currently. This translates to a yield of 5%-7% based on its current share prices.

'We believe GWP's current valuations are attractive as it is only trading at 6 times FY11 PER, as compared its peers weighted average FY11 PER of 7.3 times. Furthermore, its current share price of 73 sen is lower than its listing price of 76 sen,' it said.

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