Kuala Lumpur Kepong - 1HFY08 net profit well in-line (Results Note)

Success Transformer Group - In line with expectations (Results Note)



Price: RM1.03

Target Price: RM1.43

Recommendation: BUY



· 1Q08 results continue to trend in line with expectations underpinned by commendable showings across all divisions. Reported revenue of RM42.6m is some 24.3% of our full year's forecast while net profit of RM5.1m is higher at 25.5%.

· QoQ, revenue was 3.5% lower seasonally given the lesser number of workdays during the quarter. On a divisional basis, the transformer and lighting division saw revenue dipping 4.7% while process equipment was lower by 1.5%. At the net, profit was lower by 5.6%.

· YoY, 1Q08 revenue surged 65.5% underpinned by strong growth from all the key divisions. While the transformer and lighting division grew 30.9%, the process equipment division under Seremban Engineering registered growth of 179.5% underpinned by continuous strong demand and a mere single month contribution in 1Q07.

· Margins continue to trend above our forecast. Despite a challenging environment of higher input costs and adverse currency effect, group continues to show stable margins without the need for any price revision during the quarter. A well hedged inventory of raw materials and a never ending efficiency drive had helped to cushion profitability. Going forward, some price adjustment will be inevitable with management confident that historical margins can be sustained.

· Forecast and Buy recommendation is maintained. We continue to like the company for its low valuation and strong growth prospects for all its divisions. Trading at a mere 6.2x current year, we rate it a BUY at RM1.43 based on 8.5x FY08. A 3 sen tax-exempt interim payable in July or a yield of 2.9% should be an added incentive.





KENANGA INVESTMENT BANK BERHAD (15678-H)