• 9M17 revenue met 71.3% of our full year forecast
• 9M17 PATMI met 80.6% of our full year forecast
• Revised our FY17e and FY18e revenue and cost assumptions
• Maintain Buy; lower target price of $0.51 (previously $0.52)

The positives

• YoY higher PBT and PBT margins are a reflection of cost controls in the underlying business. Gross profit does not accurately reflect net raw material costs, as commodity swaps are used to hedge the cost of raw material. The underlying business is viewed at the PBT line, as that is after the effect of the commodity swap. Despite the lower revenue, PBT is higher mainly from the effect of foreign exchange gains and net gain in derivative.
• 9M17 PATMI is ahead of our full year forecast. Consequently, we revise our FY17e and FY18e revenue and cost assumptions. Our FY17e/FY18e revenue is now -5.4%/-5.5% from previous, and PATMI is now +6.4%/-8.3% from previous.
• Clean balance sheet with cash hoard. Net cash (cash less total borrowings) of $42.5 million represents 48% of market capitalisation. We continue using the current-asset value (current assets less total liabilities) of 37.0 cents/share to demonstrate the limited downside risk.

The negatives

• YoY lower revenue from lower demand for aluminium building products. This is due to the slow down the local property market.

Outlook

The outlook is stable. Mature business and we expect to meet our full year forecast. We view Nam Lee as a yield-play. With the ample cash on the balance sheet, we believe in Nam Lee’s ability to maintain FY16’s dividend of 2.0 cents in FY17. Positive surprise will be from higher than expected dividends being proposed.

Maintain Buy; lower target price of $0.51 (previously $0.52)

Our target price represents an implied 11.5x FY17e forward P/E multiple, compared to the Straits Times Index twelve-month forward P/E multiple of 14.8x. The last close price of $0.365 offers an attractive estimated dividend yield of 5.5%, which does not take into consideration the cash hoard that continues to be retained on the balance sheet.