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Author: PublicInvest   |   Latest post: Wed, 11 Dec 2019, 9:46 AM

 

THREE-A RESOURCES BERHAD - Higher Tax Rate Affected Earnings

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Three-A Resources (3A)’s 3QFY19 net profit came in at RM5.7m, down by 32% YoY due to an impairment loss on receivables of RM1.1m and higher effective tax rate. Cumulative 9MFY19 net profit of RM19.4m fell by 2% YoY. The results came in below our expectations at 58% of our full year estimates. The discrepancy in our forecast was mainly due to the higher-than-expected operating expenses and effective tax rates as some expenses incurred were not eligible for tax deduction. Therefore, we adjust our FY19-21F earnings forecast downward by 6%-17%. As a result, our TP is revised to RM0.95 (previously RM1.08) based on a 15x PER pegged to FY20F EPS. Nevertheless, we remain optimistic on 3A’s long term prospects due to i) lower tapioca prices and the relatively resilient F&B industry despite slower economic growth iii) management’s continuous efficiency initiatives and cost optimization plans to increase productivity, and iv) healthy balance sheet with a net cash position. We maintain our Outperform rating. On a side note, 3A declared an interim dividend of 2 sen.

  • 3QFY19 revenue slipped by 2% YoY to RM111.5m, due to the lower average selling price and sales volume in Malaysia. The weaker sales in the local market were off-set by stronger sales in export market, which grew by 30% YoY. The local market remains the largest revenue contributor for 3A, accounting for 59% of total sales for the current quarter.
  • 3QFY19 PBT decreased by 14.2% YoY, mainly affected by the lower average selling price and an impairment loss on receivable of RM1.1m. Global tapioca prices have been lower as compared to FY18, thus leading to a slight improvement in gross profit margins YoY (3QFY19: 16.2% vs 3QFY18: 15.9%). When compared to the immediate preceding quarter, PBT increased by 6.1% QoQ, underpinned by higher sales volume and lower raw materials costs. Moving forward, we expect to see continued improvements in 3A’s margins as the group focuses on efficiency initiatives through better economies of scale from its third maltodextrin plant and cost optimization initiatives.

Source: PublicInvest Research - 20 Nov 2019

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3A 0.745 -0.005 (0.67%) 3,000 

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