PublicInvest Research

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


Three-A Resources Berhad - Within Expectations

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Three-A Resources (3A) reported a 2QFY20 net profit of RM6.7m, up by 6.3% YoY mainly attributable to the lower raw materials costs. Results were in-line with expectations, as cumulative 1HFY20 earnings came in at RM15.5m, accounting for 49.7% of our earnings forecast. We remain positive on 3A’s future prospects as we are of the view that the lower raw material prices and the group’s focus on automation to achieve cost savings on manpower as well as better economies of scale should lead to an uptick in margins. We maintain our Outperform call on 3A with a higher TP of RM0.98 (previously RM0.95) based on a 15x PE multiple as we roll forward our valuation base year to FY21F.

  • 2QFY20 revenue down 0.9% YoY mainly dragged by the lower sales volume recorded in Malaysia and Singapore. Sales in Malaysia and Singapore fell by 24.8% and 3.4% YoY respectively. On the other hand, export to other foreign countries grew by 49.4% YoY as the group continues to develop products to meet customers’ requirements. Meanwhile, revenue was higher by 6.2% QoQ on the back of higher average selling price.
  • 2QFY20 PBT grew by 14.3% YoY to RM9.6m due to the lower raw material costs. We attribute the improvement in PBT margins (2QFY19: 7.8% vs 2QFY20: 9%) to lower sugar and tapioca prices (see figure 1). On a QoQ basis, 3A’s PBT fell by 25% due to higher raw material price and an impairment loss on receivables of RM0.6m recorded in 2QFY20.
  • Future Outlook. We remain positive on 3A’s future outlook as the group remains focused on its automation plans to increase plant efficiency to achieve cost savings in labour cost to mitigate the challenging business environment. Furthermore, in view of the lower sugar and tapioca prices, we expect to see an improvement in margins going forward. Meanwhile, the group is currently looking to construct a new glucose plant to cater for the higher demand for maltodextrin products.

Source: PublicInvest Research - 25 Aug 2020

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