Better FY19 margin expected for Three-A Resources

TheEdge Fri, May 17, 2019 11:16am - 4 years View Original


Three–A Resources Bhd
(May 16, 87 sen)
Maintain outperform with an unchanged target price (TP) of RM1.13:
Three-A Resources Bhd’s (3A) first quarter of financial year 2019 (1QFY19) revenue remained unchanged year-on-year (y-o-y) at RM102.5 million, while net profit improved by 20% y-o-y to RM7.5 million due to lower tapioca prices during the quarter compared with the corresponding quarter of FY18. The results were within our expectations.

We are generally optimistic about 3A’s long-term prospects, mainly driven by more significant contributions from the new maltodextrin production line. We continue to favour 3A due to: i) its expertise and consistency in supplying varied types of high-quality food and beverage ingredients, establishing strong rapport with large multinational corporations within the industry; ii) stronger production capacity and expansion plans; and iii) continuous emphasis on research and development initiatives resulting in new product developments. Therefore, we keep our earnings forecasts unchanged and maintain our “outperform” rating with a TP of RM1.13, based on 15 times FY19 forecast earnings per share.

Its 1QFY19 revenue stayed flat at RM102.5 million. Sales in the local market slipped by 4% y-o-y. Stronger export market sales helped offset the impact of weaker sales in Malaysia.

Revenue in Singapore and other countries grew by 24% and 4.6% y-o-y respectively. However, when compared with the immediate preceding quarter, revenue decreased by 14.8% mainly due to a lower sales volume. Going forward, we forecast a 5% compound annual growth rate for FY19 to FY21, driven by diversification of product offerings and better sales contributions from the new maltodextrin production line.

Its 1QFY19 profit before tax jumped by 45.5% y-o-y, mainly attributed to lower raw material price levels compared with last year’s and higher average product selling prices.

Year to date, global tapioca prices have been trending sideways, leading to an improvement in operating margins (1QFY19: 18.8%; 4QFY18: 16.2%). Nonetheless, we are positive as we expect to see an improvement in margins for FY19 in view of falling global tapioca prices, supported by better contributions from the third maltodextrin plant, which will provide better economies of scale and cost optimisation. — PublicInvest Research, May 16

The content is a snapshot from Publisher. Refer to the original content for accurate info. Contact us for any changes.






Related Stocks

3A 0.915

Comments

Login to comment.