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Teraplast First Impression 3Q 2010 - Margins higher than expected

Teraplast (TRP) released its un-consolidated 3Q 10 results under Romanian Accounting Standards (RAS) and the key consolidated 3Q 10 P&L positions (IFRS), which include the results of the main entity Teraplast, Politub (the plastic pipes producer) and Plastsistem (the thermo-insulating sandwich panel producer).

Sales in line with estimates: Teraplast 3Q sales were flat on our estimates at RON 67.2 mn, up 8.3% yoy. As we expected, TRP turnover decelerated following two consecutive quarters of double-digit growth. At the same time, EBIT came in 25% lower vs. our estimates and 32% lower yoy due to higher raw material costs. Aided by financial gains of RON 0.7 mn (vs. our estimates of RON 1 mn), the net profit came in lower yoy and compared to our estimates at RON 4.1 mn.

Higher sales, higher margins on a consolidated basis: Consolidated 3Q 10 sales reached RON 87.3 mn, up 12% yoy, slowing down from the growth of over 18% over the first two quarters. The higher growth pace under IFRS against un-consolidated figures indicates a better performance of the other two entities of the Group, namely Politub and Plastsistem. On an increase in depreciation costs (+27% yoy) following the commissioning of several investments at the new production facility in the first part of the year and higher raw material costs (+26% yoy), EBIT decreased 11% yoy to RON 6.5 mn. However, the consolidated operating margin was higher than we incorporated in our model (est. 5% vs. actual 7.5%). Better operating margins were the result of the fact that the company kept other operating expenses under control (only modest increases yoy). The net profit was flat yoy at RON 6.3 mn helped by a breakeven financial result compared to a financial loss in 3Q 09.

Outlook and recommendation: While we had anticipated a slow down of the turnover growth pace compared to the first two quarters, we were positivlely surprised by the higher than expected operating margins. Although decelerating, a growing top line could be considered as positive in the context of the important contraction of the Romanian construction sector in 2010. We will update our DCF model, which is based on IFRS consolidated figures to include the 3Q developments. Having in mind the superior operating margins reported vs. our estimates, we believe that the update of our model could result in a slightly higher target price, which could trigger an upgrading of our current 'hold' recommendation.

Sursa: http://www.rciro.ro

Tags: higher estimates operating consolidated expected margins teraplast first