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KENANGA RESEARCH Results Note

PP7004/02/2011(029201)

28 September 2010

Stock data

Market cap (RMm): 362.2

Issued shares (m): 151.5

52-week range: RM1.51-RM4.35

3-mth avg daily volume: 603,315 shrs

Bloomberg code: ADV MK

YTD price chg: -24.6%

YTD KLCI chg: +15.1%

Est. free float: 46.7%

Major shareholders:

Low Chin Guan: 43.8%

LTH: 9.5%

KLCI FBM70 FBM100 Syariah Hijrah

No No No Yes No

Consensus

FYE 31 Oct 2010E 2011E

Net profit (RMm): 37.6 53.5

EPS (sen): 25.8 36.6

Forecast revision

FYE 31 Oct 2010E 2011E

Prev. net profit (RMm): 36.7 57.1

Revision (%): -12.9% -11.6%

Revised net profit (RMm): 32.0 50.5

Share price chart

The Research Team

research@kenanga.com.my

Tel: 603-2713 2292

l Slightly below expectations still. 9M10 revenue was 70% of our forecast whilenet is 65%. Against consensus, revenue was 67% while net was 64%. The slightunderperformance as against our forecast was mainly due to delay in its expansionas well as some margin compression arising from the hostile currency and

commodity market.

l QoQ, revenue up 8%while net improve 27% due to lower effective taxes. EBIT %in fact improved 2 basis points to 11.4% due perhaps to a relative benign exchangerate environment where USD : RM had trended quite favorably between RM3.19 RM3.35 while latex prices eased from RM7.50 to below RM7 as at end Jul 2010.

l 9M10 revenue improved 18% as capacity improved by a similar quantum. Net

however surged 107% in the absence of forex derivative losses which had

dampened 9M09s results. Recall that FY09s profitability was derailed by some illtimed currency hedges which dented bottomline by circa RM12.5m for 9M09.

l Capacity expansion behind schedule still. Kluangs 7 lines with 1.5b capacitysupposedly up by May 2010 is much delayed due to component shortage. While 2

lines are up and running by end July 2010, management is now only guiding foranother 2 lines to be up by end Oct 2010, bringing total capacity to 3.8billion piecesas opposed to the original 4.5b. This we have already factored into our forecastwhen we trimmed topline by 13% upon the release of 2Q10 result in June 2010.

l Outlook for latex and RM should plateau at or near the current levels as per

management. While wanting to agree with managements view on the above, wesuspect however that current momentum remains strong for the commodity andRM bulls in the near term. Upside bias we believe is maintained in the near termbut quantum of which could be more limited going forward.

l Management sees little price competition thus farwith both demand and supplyvery much balanced at the moment. Concerns of a potential supply glut remainunfounded as can be seen from Adventas delayed expansion. Moreover,

management believes that most manufacturers will not be adding capacityunnecessarily and should remain flexible in their line rollouts depending on market

conditions.

l Forecast revised lower on the back of expansion delays and factoring a moreconservative sets of assumptions in view of the relatively more challenging

manufacturing environment. Our FY10F net forecast is lowered by 13%, taking intoaccount RM strength and buoyant latex prices while FY11F sees revenue trimmed

by 3.5% while net is lowered by 12%. Target price is also lowered to RM3.06 based on 9x FY11F (from RM3.85 on 10x FY11F previously). While newsflowscould remain negatively biased in the near term, recent sell-off of all the glove

counters with losses ranging between 23% - 39% from their respective July peakcould have factored in a lot of negativities. Values we believe are emerging onceagain for the sector and we continue to rate Adventa a BUY.

Adventa

Expansion delayed

BUYRM2.39Target Price: RM3.06

Results Highlights

FYE 31 Oct (RMm) 3Q09 4Q09 1Q10 2Q10 3Q10 QoQ% YoY% 9M10 9M09 YoY%

Revenue 72.7 74.8 76.6 81.1 87.4 7.7% 20.2% 245.2 208.1 17.8%

EBIT 10.8 9.7 11.3 9.1 10.0 9.8% -7.8% 30.3 16.7 81.4%

PBT 5.7 6.1 10.1 7.7 8.5 9.7% 50.0% 26.3 12.3 113.5%

Tax (1.1) (0.7) (0.7) (1.3) (0.3) (2.2) (0.8)

MI 0.1 0.0 0.0 0.0 (0.0) (0.0) 0.1

Net 4.6 5.4 9.4 6.5 8.2 27.0% 78.7% 24.0 11.6 106.8%

EPS (sen) 3.2 3.7 6.3 4.4 5.5 10.7 5.1

EBIT % 14.9% 13.0% 14.7% 11.2% 11.4% 12.4% 8.0%

PBT% 7.8% 8.1% 13.1% 9.5% 9.7% 10.7% 5.9%

Tax % -19.9% -11.5% -6.7% -16.6% -3.3% -8.5% -6.1%

Net % 6.3% 7.2% 12.3% 7.9% 9.4% 9.8% 5.6%

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