Modernform Group - MODERN - BUY
Target price : Bt35
Recommendation : BUY
Closing Price (22 April 09) : Bt28
Profits expected to slow in 1H09 but pick up in 2H09
- Our estimate suggests that MODERN's 1Q09 profit will fall 56% YoY and 49% QoQ.
- We cut our 2009 net profit outlook for MODERN by 7.5% as profits are
expected to slow in 1H09 but pick up in 2H09.
- We also slash our 2009 price target to Bt35/share, but we maintain a 'Long-Term BUY' rating on MODERN.
1Q09 profit expected to be down 56% YoY and 49% QoQ
Our forecast assumes that knocked-down furniture maker MODERN will achieve sales of Bt491m in 1Q09, down 28% YoY and 24.1% QoQ. We also estimate MODERN's 1Q09 net profit to come in at Bt42m, or Bt0.49 a share, down 56% YoY and 49% QoQ. The sharp profit slide reflects the fact that (i) sales are anticipated to have fallen as sluggish economic climate has prompted its clients in the residential property project segment to delay the receipt of products and sales in the office furniture segment are likely to have faltered; (ii) profit contribution from affiliates are forecast to fall 20.9% YoY but rise significantly QoQ to Bt22.5m; and (iii) gross margins are expected to be down as much as 3.1% YoY but flat QoQ at 37% in 1Q09.
2009 net profit forecast slashed by 7.5%, as profits expected to slow in 1H09 but pick up in 2H09
Sales are expected to remain stuck in slow lane in 1H09, but things are likely to pick up in 2H09. Currently, MODERN has an order backlog of roughly Bt600m on hand. Because of slowing sales, we therefore trim our 2009 sales outlook for MODERN by 7.6% from Bt2,856m to Bt2,638m, down 1.4% YoY. The cut also prompts us to lower our 2009 net profit view for MODERN by 10.5% from Bt408m to Bt365m, or Bt4.39 a share, down 4.5% YoY.
2009 price target cut to Bt35/share, but 'Long-Term BUY' rating maintained
To reflect lower profit expectations, we trim our 2009 price target to Bt35/share from a previous price estimate of Bt39.25/share. The new target, based on a P/E multiple of 8x, offers a 25% upside from the stock's latest closing price of Bt28/share. Despite earnings and price target cuts, we maintain a 'Long-Term BUY' rating on MODERN as the stock retains its appeal in terms of high dividend yield. We expect MODERN to pay a 2009 dividend of Bt3/share, representing a fat yield of 10.7%. MODERN is also long-term debt-free.
By Phillip Securities (Thailand) Plc. on Apr 23, 2009
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