Gross profit margin grew 2.1ppt QoQ to 35.8% in 2Q09 - The Group's gross profit decreased 9.2% to $9.3m in 2Q09, due to lower product ASP, consolidation of the Group's new marine switchboards and services segment which carries a lower GPM, resulting in 1.9% YoY decrease in GPM to 35.8% in 2Q09. However, on a more positive note, GPM actually grew 2.1ppt in 2Q09 on a QoQ comparison.
Earnings revision ? We maintain our revenue forecast for FY09~10F but lift our GPM assumptions by 4.4~3.5ppt to 36.5~37.4% respectively as we expect BH Global to continue to experience margin expansion in 2H09F given that the Group has utilized a large proportion of its higher cost based inventory in 2Q09, built up prior to the collapse in copper prices in 3Q08. As such, we raise our net profit forecast by 17.4~11.4% to S$16.8~18.1m for FY09~10F respectively.
Upgrade to BUY; TP increased to S$0.30 ? We raise our TP to S$0.30 after switching to P/E valuation metrics as we expect the Group's earning to register growth from 3Q09F onwards. We look beyond FY09F's financials and value BH Global at 7x FY10F P/E, BH Global's median P/E for FY05 to FY08, deriving our TP of S$0.30. Key risk to the stock - Debt collections issue where AR turnover days increased to 125 days at 1H09 vs 92 days at FY08.
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