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Author: kltrader   |   Latest post: Mon, 24 Jun 2019, 9:21 AM

 

Asia File Corporation - a Weak Start to the Year

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Downgrade to SELL

Results were below our expectation on higher raw material costs. The improved YoY associate profit contribution was insufficient to cushion reduction in the Group’s earnings from its core operations. Correspondingly, we cut our FY3/19-21 earnings estimates by 23-30%. We also cut our TP to MYR2.21 (-29%) based on an unchanged FY19E PER of 11.6x (5-year historical mean PER) and downgrade Asia File to a SELL.

1QFY19 earnings fell below our expectation

Asia File reported sluggish 1QFY19 net profit of MYR8.0m (-44% YoY, -29% QoQ), which made up only 15% of our full-year estimates. Its margins were weaker with EBITDA and net profit margins at 12.3% and 9.5% (1QFY18: 19.4% and 15.6%) respectively. Its revenue however was in line at MYR84.1m (-7.5% YoY, +0.4% QoQ), at 23% of our full-year estimate. The variance was due to higher raw material costs, particularly as a result of higher pulp prices of roughly 30% YoY and 8% QoQ.

Associate profit contribution down QoQ

Associate profit contribution (from Muda Holdings; MUDA MK; Not Rated), was higher YoY at MYR2.4m (+>100% YoY) in 1QFY19 on higher sales volume from paper packaging products and better ASPs of industrial paper products. That said, profit contribution dropped 29% QoQ due to lower ASPs for its trading division. 1QFY19 associate profit contribution accounted for only 17% of our full-year estimate.

Lowering earnings estimates

We cut our FY19/20/21 earnings estimates by 30%/26%/23% to reflect the uptrend in pulp price. The Group soft launched its new disposable food ware product in 1QCY18. This may increase its depreciation cost and raw material consumption, but we think the impact will not be significant as management has only so far spent less than MYR11m capex for this segment. The production rate is still at an infant stage as management is still assessing the market situation. [Prior:HOLD]

Source: Maybank Research - 03 Sep 2018

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