• Revenue exceed our estimate by 12%; PATMI was lower than our estimate by 4.8%
• 0/1.0 cent final/special dividend, 47% payout (FY16: 1.0/1.0 cent, 53% payout)
• Maintain Buy; higher target price of $0.56 (previously $0.51)

The positives

• YoY higher PATMI, but due to different tax rates. Effective tax rate in FY16 was higher due to the provisions made for transfer pricing adjustments for subsidiaries in Malaysia.
• Clean balance sheet with cash hoard. Net cash (cash less total borrowings) of $40.8mn represents 42% of market capitalisation. We continue using the current-asset value (current assets less total liabilities) of 37.4 cents/share to demonstrate the limited downside risk.
• 2.0 cents total dividends met expectations. In our previous report, we opined that Nam Lee has the ability to maintain FY16’s 2.0 cents dividend in FY17, due to the ample cash on the balance sheet. While Nam Lee’s dividend policy is to pay about a third of earnings, actual payout ratio historically fluctuates about 50%. This explains the lower payout ratio for FY17, despite the higher earnings.

The negatives

• Significant increase in “other creditors and accruals” liability. The liability increased from $9.07mn at end-FY16 to $14.04mn at end-FY17. This was due to provision of a one-off replacement cost for a past building project. This provision was recognised in other operating costs.
• Dilution by 750,000 new shares issued in 4Q. This was due to exercise of employee share options. Number of shares increased by 0.31% from 241,294,082 to 242,044,082.

Outlook

The outlook is stable to positive. The tone of management commentary is now more upbeat compared to previous quarters, mentioning that the recovery in the US economy could have a positive impact on the aluminium industrial product business. This refers to the aluminium frames for container refrigeration units. We note that in the recent 3Q 2017 earnings presentation by United Technologies (NYSE: UTX), commercial sales for Transport Refrigeration was “up high single digit”. This was an improvement over 2Q (“up low single digit”) and 1Q (“down high single digit”).

Domestically, Nam Lee could potentially benefit from the pipeline of infrastructure projects and spate of collective-sales. Any revenue recognition though, would probably only be at least two years from now, coinciding with the tail-end of the projects.

Maintain Buy; higher target price of $0.56 (previously $0.51)

Our target price represents an implied 11.1x FY18e forward P/E multiple and 0.96x FY18e forward P/B multiple. The 2.0 cents dividend offers an attractive yield of 5.1% based on the last close price of $0.395. We currently forecast 2.5 cents dividends for FY18e and maintain our view of Nam Lee as a yield-play.