PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 15 Jan 2021, 10:38 AM


Three-A Resources - Earnings Boosted by Lower Raw Material Costs

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Three-A Resources (3A)’s 4QFY19 net profit came in at RM9.9m, higher by 8.6% YoY as operating profit margins improved due to lower raw material cost. For the full year, earnings exceeded our expectations, accounting for 106% of our full-year forecasts. This was mainly attributable to lower-than expected raw material cost due to softer tapioca prices. Our Outperform call on 3A is maintained, with an unchanged TP of RM0.95 based on a 15x PER pegged to FY20F EPS. Despite the challenging business environment as a whole, we remain positive on 3A’s outlook given the relatively resilient nature of the F&B industry and lower tapioca prices as well as management’s continuous efforts to increase productivity.

  • 4QFY19 revenue slipped by 5.1% YoY to RM114.2m due to the lower average selling prices and sales volume locally. The sales in Malaysia fell by 16% YoY from RM79.7 to RM67m. However, the drop in Malaysia’s sales was partially mitigated by the higher sales volume recorded in the export market as the export market grew by 16% YoY from RM40.7m to RM47.2m. When compared to the immediate preceding quarter, 3A’s 4Q revenue increased marginally by 2.5% QoQ due to higher quantities of products sold.
  • 4QFY19 PBT jumped by 29% YoY to RM12.8m mainly due to lower raw material costs. 3A’s gross profit margins have improved (4QFY19: 18.6% vs 4QFY18: 16%) given the decline in global tapioca prices (Figure 1) amid weaker global demand. 3A’s PBT grew by 43% QoQ on the back of lower raw materials costs and an impairment loss on receivables amounting to RM1.1m recorded in the previous quarter. Going into FY20F, we believe we will continue to see improvements in 3A’s margins as the group slowly reaps the benefits from its on-going efficiency initiatives via better economies of scale, as well as the weaker global tapioca prices.

Source: PublicInvest Research - 26 Feb 2020

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3A 0.84 +0.025 (3.07%) 597,200 

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