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PublicInvest Research

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

 

Three-A Resources Berhad- Missing Expectations

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Three-A Resources (3A)’s 3QFY20 net profit grew by 3.3% YoY to RM5.9m, largely attributable to higher sales recorded in the export market. Cumulative 9MFY20 net profit came in at RM21.4m and was below expectations, accounting for 68.5% of our full-year earnings forecast. The discrepancy in earnings was mainly due to the weaker-than-expected sales in the local market given the weaker consumer sentiment. We adjust our earnings forecast for FY20-22F downwards by 5-7% to account for the lower domestic sales as we believe that the current third Covid-19 wave as well as Conditional Movement Control Orders (CMCO) in specific locations will impact consumer spending further. Our TP is lowered to RM0.93 (RM0.98 previously) based on a 15x PE pegged to FY21F EPS. Maintain Outperform. 3A declared an interim dividend of 2.2 sen per share meanwhile.

  • 3QFY20 revenue grew marginally by 2.1% YoY mainly due to the higher quantities of products sold in Singapore and other export markets. However, the growth in export was partially weighed by the decline in local sales. Sales in Malaysia fell by 8.5% YoY to RM61.3m due to weaker consumer sentiment as consumers remain more prudent in spending. On a QoQ basis, revenue grew by 6.4% due to the higher sales volume recorded, though to no great surprise coming out of the nationwide movement restrictions and curtailed consumer spending.
  • 3QFY20 pretax profit (PBT) slipped by 2.0% YoY to RM8.7m despite recording higher sales, largely due to the foreign currency losses of RM1.8m recorded. On a cumulative basis, 9MFY20 PBT surged by 13.7% YoY from RM27.5m to RM31.2m on the back of the lower raw material costs given the lower tapioca prices (see figure 1).
  • Future outlook. We are still positive on 3A’s long term prospects as the group remains committed on its automation plans to streamline its manufacturing process to achieve better economies of scale as well as optimizing costs. The group is also planning to build a new glucose plant within the vicinity of existing factories to cater for the stronger demand for maltodextrin products

Source: PublicInvest Research - 4 Nov 2020

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