Perstim: Earnings Dropped Sharply

Results Update

For QE30/6/2017, Pertima's net profit dropped 82% q-o-q or 76% y-o-y to RM2.8 million while revenue rose 2% q-o-q or 35% y-o-y to RM237 million. Revenue rose q-o-q due to higher selling price despite lower sales volume. Profit dropped q-o-q due to lower profit margin coupled with lower sales volume. Profit margin declined as the Group was not able to pass through the production cost hike to customer in order to maintain price competitiveness for the period under review.


Table: Perstim's last 8 quarterly P&L


Graph: Perstim's last 52 quarters' P&L

Future Prospects

The comment in the accounts highlighted the "operating environment to remain challenging and competitive due to greater presence of imports from overseas, in addition to the volatility of Ringgit Malaysia against the United States Dollar". This coupled with the heightened competition - where it is unable to pass through the production cost hike to customer - means that the Group may go thru a period of lower profit.

Tin Prices Trend

Tin prices are at 18-month high. If this price regime persists, Perstim's profit may remain weak going forward.

Chart 1: Tin's monthy chart as at July 25, 2017 (Source: Infomine)

Valuation

Perstim (closed at RM8.10 yesterday) is now trading at a trailing PER of 17 times (based on last 4 quarters' EPS of 46.5 sen). With a dividend payout of 40 sen, Perstim's DY is at an attractive 4.9%. However the dividend payout may not be sustainable if the Group's profit doesn't rebound back quickly.

Technical Outlook

Perstim is in a long-term uptrend line with support at the 10-month SMA line of RM7.50. 


Chart 2: Perstim's monthly chart as at July 31, 2017 (Source: ShareInvestor.com)  

Conclusion

Based on challenging operating environment, weaker financial performance & demanding valuation, I believe it is a good idea to take some profit on Perstim.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.