Adventa announced a poor results

Results Update

Adventa released its results for QE31/1/2011 yesterday. It is plain to see that the company is still badly affected by the high latex prices as well as the unfavorable forex movement. This dragged its net profit down significantly, resulting in a 66% q-o-q or 57% y-o-y drop in RM4.0 million. Its turnover continued to rise- gaining 17% q-o-q or 39% y-o-y to RM106 million.


Table 1: Adventa's last 8 quarterly results



Chart 1: Adventa's last 26 quarterly results

Financial Position

Adventa's financial position as at 31/1/2011 is fair. Its current ratio stood at 1 time, while debts to equity is quite elevated at 0.7 time. Since 80% of the borrowings were used to finance its working capital requirement, the high debts is deemed acceptable.

Valuation

Adventa (closed at RM2.37 today) is now trading at a PE of 12 times (based on last 4 quarters' EPS of 20 sen). At this multiple, Adventa is deemed fully valued.

Other Comment

The rubber glove sector has been badly affected by the rising latex prices & the strengthening of the RM vis-a-vis the USD. This coupled with the slight overcapacity in the sector has caused the players to adopt a more predatory marketing approach, resulting in margin deterioration. The recent correction in latex prices seems to have run its course & prices are rebounded. The recent recovery in USD has also fizzled out. All in all, the brief ray of hope as mentioned in my recent post has now been dashed.

Technical Outlook

Adventa is still in a downtrend line, with resistance at RM2.45.


Chart 2: Adventa's weekly chart as at Mar 31, 2011 (Source: Quickcharts)

Conclusion

Based on poor financial performance, full valuation & negative technical outlook, Adventa is rated as a SELL (or at best a HOLD).