Oriental Food snacks, confectionery ops seen to remain competitive

TheEdge Mon, Feb 24, 2020 09:54am - 4 years View Original


Oriental Food Industries Holdings Bhd
(Feb 21, 68 sen)
Maintain hold with a higher target price (TP) of 75 sen:
We maintain our “hold” call on Oriental Food Industries Holdings Bhd with a higher TP of 75 sen from 71 sen, based on a two-year average price-earnings ratio (PER) of 16 times pegged to financial year ending March 31, 2021 (FY21) earnings per share of 4.7 sen, swapping from our previous peg of 17 times (five-year average PER).

Year-on-year, its revenue slipped 4.35% from RM80.8 million to RM77.5 million due to lower sales from its export markets in Asia in its snacks food and confectionery segment but was offset by marginally better sales in the domestic and ex-Asia regions.

Profit after tax (PAT) fell sharply (-14.3%) as a result of lower sales coupled with lower margins and losses in foreign exchange.

Quarter-on-quarter, Oriental Food’s revenue was lifted higher 13.77% from RM68.1 million to RM77.5 million from increased sales in both domestic and export markets. PAT expanded 130.53% from RM1.9 million to RM4.4 million, primarily from its higher sales and better margins.

Year to date (YTD), revenue and earnings dipped 5.65% and 24.46% respectively, owing to lower sales and tighter operating margins.

Oriental Food performed slightly better than expected with revenue and PAT achieving 79.6% and 77.1% of our full-year forecast, attributed to better-than-expected margins and better quarterly sales.  We tweak our earnings expectations higher by 13.3% and 11.9% for FY20 and FY21 on the back of better sales and operating efficiency as well as completion of its machine acquisitions that looks to enhance earnings going forward.

Oriental Food is due to complete its machine acquisitions and introduce automation and new production lines, which could boost earnings with better operating efficiency and buying interest for its product. This is as new products may be introduced to its current portfolio.

The snacks food and confectionery market remain competitive but we view Oriental Food in a better light than others as it is a defensive counter, offering some relief for investors who would stay clear from the high uncertainties in the global markets. — Inter-Pacific Research, Feb 21

 

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