PP10551/10/2010(025682)

31 May 2010

MALAYSIA EQUITY
Investment Research
Daily News
FY10 Results Review
Law Mei Chi
+60 (3) 9207 7621
meichi.law@my.oskgroup.com LTKM
Higher Expenses Crimp Margins
NEUTRAL  LTKM’s FY10 earnings were within our estimates, making up a 102.8% of our full-
year forecast. Q-o-q earnings fell 46.2% mainly due to lower average selling prices of
Target RM1.67
Previous RM1.75 eggs at 25 sen apiece during the last quarter, with the lowest recorded ex-farm price
Price RM1.64 at 23 sen. Higher administrative expenses also contributed to the earnings erosion.
Meanwhile, Lumiglass is expected to begin operation in the next financial year
CONSUMER (FOOD) mainly focusing on the manufacture of safety glass. We revise our numbers slightly
LTKM is principally involved in the lower as we expect slower growth in FY11 as LTKM may potentially incur higher
production of eggs, as well as glass making.
operating expenses from its glass venture. Our TP is revised to RM1.67 and
Stock Statistics downgrade to Neutral.
Bloomberg Ticker LTKM MK
Share Capital (m) 42.19 In line with our estimates. LTKM’s FY10 net earnings of RM16.3m were in line with our
Market Cap (RMm) 67.08
52 week H│L Price (RM) 1.88 1.13 expectation, coming in at 102.8% of our full-year forecast. Net profit was down 46.2% q-o-q
3mth Avg Vol (‘000) 93.5 but 80.8% higher y-o-y. Q-o-q EBIT margins narrowed from 16.1% to 10.3% mainly due to
YTD Returns 24.2
Beta (x) 0.69 lower selling prices of eggs, which according to the Federation of Livestock Farmer’s
Association (FLFAM)’s price during the quarter, averaged at RM0.25, with the lowest ex-
Major Shareholders (%) farm price at 23.42 sen. Furthermore, a 217% jump in administrative expenses from
Ladang Ternakan Kelang RM1.2m to RM3.7m led to margins erosion.
58.47
SB

Share Performance (%) Stronger y-o-y. Nonetheless, y-o-y EBIT margins were strong, improving from 9.9% to
Month Absolute Relative 16.4%. This is mainly due to lower raw materials in the earlier part of the financial year as
1m -4.2 -0.5
3m 13.1 7.4 corn prices traded below its lowest price in 2007. Apart from that, earnings were also partly
6m 27.1 22.4 contributed by higher government grants this year of RM3.2m compared with last year’s
12m 42.2 13.9 RM2.1m. A single tier final dividend of 5% and special dividend of 2% are proposed for the
6-month Share Price Performance quarter, which brings the total dividend this year to 10 sen (dividend yield of 6.1%), which is
higher than our earlier projected 8 sen.
2.00
1.80
1.60 Lumiglass venture to take off this year. The company expects its glass operations to
1.40
1.20 take off FY11. For a start, LTKM intends to focus on manufacturing safety glass and
gradually move into higher end security glass products like double glazing glass as the
1.00
0.80
0.60
0.40
business stabilizes. We believe the diversification may help to even out LTKM’s future
0.20 earnings as the poultry business is subject to volatility in egg prices. Nonetheless, we do
0.00
Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 not see any immediate short term gain from this venture due to the gestation period.

Recommendation. We adjust our FY11 numbers slightly lower to reflect a modest 5%

growth next year as we see higher operating expenses incurred for its glass venture. As
such, we arrive at a new target price at RM1.67 from RM1.75 previously, based on average
of 5x PER and 0.5x P/BV and roll over to FY11 numbers. Downgrade to Neutral due to
limited upside potential.

FYE Mar (RMm) FY08 FY09f FY10 FY11f FY12f

Revenue 108.2 133.5 131.4 138.0 145.5
Net Profit 6.4 9.0 16.3 17.2 18.5
% chg y-o-y 18.2 39.9 80.7 5.8 7.3
Consensus - - - - -
EPS (sen) 15.2 21.3 38.5 40.8 43.8
DPS (sen) 9.7 7.8 10.0 8.0 8.0
Dividend yield (%) 6.1 4.9 6.1 4.9 4.9
ROE (%) 7.3 9.8 15.5 14.1 13.5
ROA (%) 5.1 7.5 10.4 10.3 9.9
PER (x) 10.8 7.7 4.3 4.0 3.7
BV/share (RM) 2.1 2.2 2.7 3.1 3.4
P/BV (x) 0.8 0.7 0.6 0.5 0.5
EV/ EBITDA (x) 3.2 3.8 2.4 2.3 2.2

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Results Table (RMm)

Q-o-Q YTD YTD Y-o-Y
FYE Mar 4Q10 3Q09 Comments
chg FY10 FY09 chg

Revenue 30.8 32.5 -5.1 131.4 133.5 -1.6 Weaker due to lower selling prices of eggs
EBIT 3.2 5.2 -39.2 21.6 13.2 63.5 Margin weakness q-o-q due to higher operating
expenses
Net interest -0.1 -0.1 0.7 -0.5 -1.0 -47.4 -
expense
Associates 0.0 0.0 - 0.0 0.0 - -
PBT 3.0 5.1 -40.3 21.1 12.2 72.2 -
Tax -1.0 -1.2 17.8 -4.8 -3.2 48.6 -
MI 0.0 0.0 - 0.0 0.0 - -
Net profit 2.1 3.8 -46.2 16.3 9.0 80.8 In line – 102.8% of OSK’s full-year forecast.
EPS (sen) 4.8 9.4 39.4 21.7
DPS (sen) 7.0 0.0 10.0 8.0 Final and special dividend proposed
EBIT margin 10.3% 16.1% 16.4% 9.9%
NTA/share (RM) 2.73 2.60 2.80 2.31

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OSK Research

EARNINGS FORECAST

FYE Mar (RMm) FY08 FY09 FY10 FY11f FY12f

Turnover 108.2 133.5 131.4 138.0 145.5
EBITDA 15.6 17.5 24.6 27.3 29.7
PBT 7.8 12.2 21.1 22.3 23.9
Net Profit 6.4 9.0 16.3 17.2 18.5
EPS (sen) 15.2 21.3 38.5 40.8 43.8
DPS (sen) 9.7 7.8 10.0 8.0 8.0

Margin
EBITDA (%) 14.4 13.1 18.7 19.8 20.4
PBT (%) 7.2 9.2 16.0 16.2 16.4
Net Profit (%) 5.9 6.7 12.4 12.5 12.7

ROE (%) 7.3 9.8 15.5 14.1 13.5

ROA (%) 5.1 7.5 10.4 10.3 9.9

Balance Sheet
Fixed Assets 87.9 81.1 108.4 111.2 112.3
Current Assets 38.3 39.3 48.2 55.8 73.3
Total Assets 126.2 120.4 156.6 167.0 185.6
Current Liabilities 24.1 15.9 20.4 22.1 23.1
Net Current Assets 14.3 23.4 27.7 33.7 50.2
LT Liabilities 12.8 9.8 21.2 16.1 18.6
Shareholders Funds 89.4 94.8 115.0 128.8 143.9
Net Gearing (%) 20.7 2.5 8.8 5.1 3.6

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OSK Research

OSK Research Guide to Investment Ratings

Buy: Share price may exceed 10% over the next 12 months
Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain
Neutral: Share price may fall within the range of +/- 10% over the next 12 months
Take Profit: Target price has been attained. Look to accumulate at lower levels
Sell: Share price may fall by more than 10% over the next 12 months
Not Rated (NR): Stock is not within regular research coverage

All research is based on material compiled from data considered to be reliable at the time of writing. However, information and opinions expressed
will be subject to change at short notice, and no part of this report is to be construed as an offer or solicitation of an offer to transact any securities or
financial instruments whether referred to herein or otherwise. We do not accept any liability directly or indirectly that may arise from investment
decision-making based on this report. The company, its directors, officers, employees and/or connected persons may periodically hold an interest
and/or underwriting commitments in the securities mentioned.

This report has been prepared by OSK Research Sdn. Bhd. for purposes of CMDF-Bursa Research Scheme ("CBRS") administered by Bursa
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