KUALA LUMPUR (March 17): MIDF Research has maintained its "buy" call on Superlon Holdings Bhd at 87 sen with a revised target price (TP) of RM1.10 (from RM1.03) as it foresees better earnings growth for the company.

The research house said the group’s cumulative nine-month ended Jan 31, 2021 (9MFY21) core net profit rose 31.7% year-on-year (y-o-y) to RM9.17 million, coming in above expectations.

The increase in core net profit was attributable to an improved gross profit margin, and a reduction in sales and distribution expenses, which was offset by higher net exchange loss, it said in a note today.

The group also announced a dividend of 1.25 sen, payable on April 21, 2021.

“Together with earlier paid interim dividends of 1.15 sen and 0.75 sen, total declared dividends for FY21 [so far] amount to 3.15 sen per share, exceeding our initial dividend estimate. We revise our dividend estimate for FY21 to 3.5 sen per share,” said MIDF.

It also revised up its earnings estimates for Superlon for FY21 and FY22 to RM13.58 million and RM14.06 million respectively, in view of the better-than-expected results largely on the back of an improved gross profit margin and lower sales and distribution expenses.

While it continued to remain cautious about the group’s average selling prices (ASPs) and demand for its insulation products, it opined that Superlon should be able to overcome any short-term headwinds premised on its lower cost of material and production as well as its strong balance sheet with net cash of RM10.6 million.

It noted that the group had also allocated RM6.2 million for short-term investment.

Going ahead, it foresees better earnings growth for Superlon, underpinned by lower operating cost, better operations for the company's Vietnam subsidiary, a recovery in Malaysia’s economic condition and global supply chain resumption.

Downside risks include fluctuations in the exchange rate and rising raw material cost, it said.

At 9.52am today, Superlon had risen four sen or 4.6% to 91 sen, valuing the company at RM139.2 million.