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Wednesday, December 31, 2008

Adventa (7191) >>> A Recession-Proof Business

Adventa (7191) >>> A Recession-Proof Business By Zhuge Liang

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Adventa’s quarterly results came in within expectation, mainly boosted by deferred tax income and the consistent EBITDA margin of 11% q-o-q. However, compared with the previous years, EBITDA margin was down 2%-pts from 13% previously on higher operation costs, including higher prices of latex and natural gas tariff and logistic costs. Nevertheless, Adventa is still a Buy with a target price of RM1.23 given that its niche products targeting the surgical market are recession-proof.

FY08 results were within expectation
Although 4QFY08 revenue increased only 4.5% q-o-q to RM65.4m, net profit jumped 92.9%, mainly due to deferred tax income. Its EBITDA of RM7.2m in the current quarter improved by about 4.2% while EBITDA margin remain unchanged at 11% q-o-q, due mainly to efficient cost controls and material prices locked in. In comparison with the previous year, the EBITDA margin of 11% was lower by 2%-pts mainly due to higher: 1) latex prices; 2) natural gas tariff, which increased by 72% from Aug 1 ‘08, and 3) logistics costs on the back of the fuel price increase.


Mantain BUY
Target price for Adventa is RM1.23, based on a PER of 7x FY09 earnings. We like the company for its specialisation in the surgical glove segment. To recap, surgical gloves yield one of the highest margins among other gloves owing to its niche target market and the higher technology required to manufacture it. Also, Adventa’s product is recession-proof as the need for gloves does not correlate with the economic cycle.

Risks to our view.
These include: 1) an unexpected uptrend in commodity prices as the locked-in period for raw material is usually shorter than the company’s sales commitments, thus putting rubber glove manufacturers at a disadvantage, and 2) weakening of the US dollar.

Adventa 7191

BUY===> Maintain
Price ==> RM0.695
Target==>RM1.23




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