KENANGA: Adventa - BUY - 31 Mar 2008

Adventa – Dividends surprise (Results Note)



Price: RM1.19

Target Price: RM1.90

Recommendation: BUY



· Commendable finals with revenue and bottomline growing by 29.6% and 24.9% respectively on the back of improved production and rising demand for surgical and dental especially. For the full year, we estimate that sales of surgical and examination gloves would have grown by 10% while dental up by at least 50%.

· Final results though commendable but is still short of our expectations. Topline of RM224.9m was at 91.5% of our full year’s forecast while bottomline of RM20.1m at 90.5%. Our more aggressive assumption on both production and the exchange rate were mainly to blame for the short-fall while some further gestation on the Uruguay operation had contributed to the slight underperformance.

· QoQ, topline was lower at 4.8% while net profit was higher by 16.2%. The lower topline for the 4Q08 was mainly attributable to a combination of less favourable product mix and the strengthening of the local unit – RM. Lower effective taxes as a result of investment allowances had helped to shore up bottomline performance for the period.

· Dividend surprise. Company has declared a final tax-exempt dividend of 4.4sen or a payout of 30% which is much higher than our forecast of a 20% payout. Balance sheet remains most healthy still after placing out 9m shares at RM1.56 recently, raising some RM14m to fund its capital expansion. Post dividend payment, net gearing remains a comfortable 36%.

· Forecast is revised lower on account of a stronger RM, higher production costs on the back of rising latex prices as well as a slightly more conservative assumption overall on our part. Our topline forecasts for FY09 and FY10 are lowered by 11.6% and 10.9% respectively while net profit for the two years have been lowered accordingly by 15.3% and 19%. As a result, our target price is also lowered to RM1.90 from RM2.48 previously, applying the same 9.5x multiple.

· Despite the lowering of our forecast and targets, we continue to rate the company a BUY given the encouraging prospects in the medical glove segment especially surgical. Strong R&D capability, product niche especially in the high-end surgical couple with a growing suite of products and solutions should set a strong platform for the company in becoming a supply chain leader in the healthcare institutions in the Asean region.





KENANGA INVESTMENT BANK BERHAD (15678-H)

Research Department