Three-A Resources Bhd
(Aug 20, 84.5 sen)
Maintain outperform with a lower target price of RM1.08: Three-A Resources Bhd (3A) reported an improved second quarter of financial year ending 2019 (2QFY19) net profit, up by 18.6% year-on-year (y-o-y) to RM6.3 million. Cumulative first half of FY19 (1HFY19) net profit of RM13.7 million improved by 19% y-o-y. It was below our expectations at 37% of full-year estimates, however, this coming largely due to an underestimation of operating expenses and effective tax rates. We trim our earnings forecast for financial year ending 2019 forecasts to financial year ending 2021 forecasts (FY19F-FY21F) by 8.6%-9.7% to account for these accordingly. Nevertheless, we continue to remain optimistic about Three-A’s long-term prospects due to: i) lower tapioca prices and the relatively resilient food and beverage industry despite slower economic growth; iii) management’s continuous efficiency initiatives and cost-optimisation plans to increase productivity; and iv) healthy balance sheet with a net cash position.

 
2QFY19 revenue rose by 6.4% y-o-y to RM107.9 million, driven by stronger sales in all geographical segments and higher average selling price of products sold. The Malaysian market remains as the largest revenue contributor for Three-A, accounting for 60.8% of total sales. For cumulative 1HFY19, total exports grew by 12.2% in both Singapore and other countries segment.

2QFY19 profit before tax (PBT) jumped by 21.5% y-o-y, underpinned by lower raw material prices and higher average selling prices of products sold. Global tapioca prices have been lower compared to FY18, thus leading to an improvement in y-o-y gross profit margins (2QFY19: 16% versus 2QFY18: 13.8%). However, when compared to the immediate preceding quarter, PBT fell by 16.9% quarter-on-quarter mainly attributable to the higher raw material prices and impairment loss on receivables. Moving forward, we expect to see continued improvements in Three-A’s margins in view of lower global tapioca prices, supported by the better economies of scale from its third maltodextrin plant. — PublicInvest Research, Aug 20