Modernform Group – MODREN - BUY
Target price : Bt35
Recommendation : BUY
Closing Price (15 May 09) : Bt25.75
1Q09 profit above forecast
- MODERN made a net profit of Bt56m in 1Q09, down 44.9% YoY and 31.6% QoQ.
- Sales are expected to remain stuck in slow lane in 2Q09 but recovery is anticipated in 2H09.
- We maintain a 'Long-Term BUY' recommendation on MODERN with a 2009 price target of Bt35/share.
1Q09 net profit of Bt56m down 44.9% YoY and 31.6% QoQ
Knocked-down furniture maker MODERN posted sales of Bt508m in 1Q09, down 25.5% YoY and 21.5% QoQ. Net profit for the quarter came in at Bt56m, or Bt0.7 a share, down 44.9% YoY and 31.6% QoQ. The results came in 34.3% above our forecast of Bt41.7m, as profit contribution from affiliates was 36.4% better than expected at Bt25.8m. The main culprits behind the sharp profit decline on both YoY and QoQ basis were: (i) gross margin was down 3.15% YoY but flat QoQ at 36.95%; (ii) sales fell as much as 25.5% YoY and 21.5% QoQ to Bt508m as sluggish economic climate prompted its clients in the residential property project segment to delay the receipt of products and sales in the office furniture segment also faltered; and (iii) the SG&A expenses to sales ratio climbed as much as 8.6% YoY and 5.2% QoQ as a result of the sharp sales decline.
Sales to remain slow in 2Q09 but likely to pick up in 2H09
Sales are expected to remain stuck in slow lane in 2Q09 but recovery is anticipated in 2H09. Currently, MODERN has an order backlog of roughly Bt600m on hand. For the whole of 2009, we forecast MODERN to achieve sales of Bt2,638m, down 1.4% YoY. We also estimate its 2009 net profit to be about Bt365m, or Bt4.39 a share, down 4.5% YoY.
Long-Term BUY rating with 2009 price target of Bt35/share
Our 2009 price target of Bt35/share is based on a P/E multiple of 8x. We maintain a 'Long-Term BUY' recommendation on MODERN. In our view, the stock's appeal lies in its strong dividend yield. We expect MODERN to distribute a 2009 dividend of Bt3/share, translating into a fat yield of 11.7%. MODERN is also long-term debt free.
By Phillip Securities (Thailand) Plc. on May 18, 2009
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