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CGS-CIMB keeps 'add' on Vicplas International with earnings unchanged despite cost pressures

Felicia Tan
Felicia Tan9/27/2022 10:41 PM GMT+08  • 2 min read
CGS-CIMB keeps 'add' on Vicplas International with earnings unchanged despite cost pressures
The analysts at CGS-CIMB have kept their net profit estimates unchanged for the FY2023 and FY2024.
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CGS-CIMB Research analysts William Tng and Izabella Tan have kept their “add” call on Vicplas International with an unchanged target price of 27 cents after the company reported profit after tax of $8.8 million for the FY2022 ended July 31, down 15.0% y-o-y.

The unchanged target price is based on a P/E of 11x for the calendar year (CY) 2023 (FY2017-FY2022 average forward P/E).

While the company’s revenue for the 2HFY2022 improved some 17.6% y-o-y and 6.8% h-o-h to $67.6 million and stood above expectations at 56.2% of the analysts’ FY2022 forecast, higher costs dragged down its overall net profit.

During the 2HFY2022, Vicplas’ gross profit margin (GPM) contracted to 51.9% from 54.7% in the same period the year before. The lower GPM was due to increased operating costs.

In their report, the analysts have kept their net profit estimates unchanged for the FY2023 and FY2024 although their earnings per share (EPS) estimates for the same period were reduced by 0.01% due to the increased number of shares in the company.

On Vicplas’ decision to negotiate for a site in Mexico, which would be its fifth manufacturing location, the analysts note that the company is likely to lease the site. Capex requirements would only be needed for fitting and equipment. According to Vicplas’ management, the new plant is slated to be ready by the end of June 2024.

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To Tng and Tan, faster-than-expected project deliveries and stabilisation of raw material costs are re-rating catalysts to Vicplas’ earnings and share price. On the other hand, downside risks include more lockdowns in China affecting production, as well as sharp cost increases, which will impact profits.

Shares in Vicplas closed 0.4 cent lower or 2.16% down at 18.1 cents on Sept 27.

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