Success beats forecast on strong demand

Wednesday August 20, 2008
By SHANNEN WONG

All segments post double-digit growth amid challenges

PETALING JAYA: Success Transformer Corp Bhd’s strong first half results were above expectations, thanks to continuing strong demand for transformers and industrial lighting equipment as well as process equipment, said analysts.

Kenanga Research said in its report yesterday: “For the first half, revenue was 52% of our full year’s forecast, while net profit of RM11.6mil came in at a strong 59%.”

For the second quarter ended June 30, Success Transformer registered a 14.1% increase in revenue against the preceding quarter, with a 19.3% sales increase in its traditional transformer and industrial lighting business and a 6% increase in sales of process equipment.

Meanwhile, net profit jumped 30.3% to RM6.9mil against RM5.8mil in the first quarter due to better margins fetched by the process equipment division at 15.2% compared with 9.8% in the preceding quarter.

According to the research house, the order book of Success Transformer’s process equipment division, currently valued at RM35mil, would keep the company busy for at least six months.

“Based on its past success rate of 20% to 30%, the company should yield an additional RM9mil to RM13mil worth of contracts out of the total RM45mil contracts that the division has tendered for,” it said.

Moreover, the company’s fifth factory in Seremban is on course for completion by year-end. It would give an additional 20% fabrication capacity, Kenanga Research said, adding that the sixth factory was on the drawing board.

“We continue to like the stock because of the management’s strong execution track record and capability,” it said.

Kenanga Research is maintaining a “buy” on the counter with a target price of RM1.43.

Meanwhile, SJ Securities Sdn Bhd has revised its earnings and revenue forecasts to RM23.04mil and RM174.66mil respectively for this financial year ending Dec 31 based on Success Transformer’s strong first half results.

“All segments registered double-digit growth in the second quarter amid the challenging economic environment,” it said.

SJ Securities has also incorporated expected contributions from Success Transformer’s 60:40 joint venture (JV) company with China-based Ninghai Zhenye Luminaries Manufacturing Co Ltd, Ningbo Success Zhenye Luminaire Ltd Liabilities Co.

“The management was positive on the JV company’s future contributions,” it noted.

“We are again impressed by the management’s ability to consistently improve and add value to the company,” SJ Securities said, reiterating its “overweight” call on the counter with a target price of RM1.45.

OSK Research noted that the JV company would contribute positively to the group’s revenue in the fourth quarter when operations began in early September.

The research house is maintaining a “buy” call on the counter with a target price of RM1.57.
Success Transformer fell 1 sen to close at 90 sen yesterday on a thin volume of 191,200 shares.

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