• Astino is likely to expand its capacity, in line with the broad economic recovery trend following the Covid-19 pandemic, as well as the recent commodity supercycle trend, which may translate to firmer earnings going forward.

• Also, Astino’s AHMS should see growing demand from the poultry sector within the region as poultry consumption is still relatively low as compared to Malaysia.

• We project the net income could grow by 3-125% to RM50.5-52.2m in FY21-22f.

• Astino could justify by pegging its FY22f EPS of 19.76 sen to 11x P/E (c.28% discount vs. peers average of 15.2x), arriving at a fair value of RM2.17.

Company background

• One of the leading building material manufacturers. Astino Berhad was incorporated in 2000 and was listed in Bursa Malaysia in 2003, has established itself as one of the leading industrial enterprises in the field of building products under the brand name of Astino® with 10 manufacturing plants located in Sungai Bakap, Bukit Beruntung, Melaka and Temerloh to provide services for customers in different locations.

• International presence with solid relationship. With more than 21 years of experience in the steel industry, Astino Berhad has exported its products internationally, which include regional countries such as Thailand, Indonesia, Philippines, Bangladesh, Nepal and Vietnam; thus contributing c.10% (average) to its revenue over the past 10 years.

• Wide range of clientele. Astino’s customer base ranges from construction, infrastructure, manufacturing, agricultural, poultry industries, hardware, wholesalers and retailers, forming more than 5,000 customers. This allows them to have an upper hand to deliver specific requests as they have in-house facilities to undertake activities such as cutting, levelling, shearing, bending and welded steel pipe.

• Comprehensive variety of building materials. Products that are offered by Astino include metal roofing, c-purlin, small c-purlin, truss and batten, piping, scaffolding, slitting and levelling coil, agro facilities and its related products.

• Agro-House Multi System (AHMS). Developed in 2009, Astino AHMS is an advanced economical and environment friendly solution to the construction of various types of poultry houses such as pullet, breeder, broiler, layer houses. AHMS is designed and constructed with a clear span light gauge steel structure system to eliminate the need for interior column support for a wider poultry house. The steel structure is able to withstand the weight load of other systems such as ventilation and temperature control, watering and feeding systems.

• Key advantages of AHMS include (i) strong and heavy-duty yet lightweight unit that complies with international standards of safety (ii) easy and fast installation within a short period of 7 days, (iii) requires minimal maintenance and hygienic, (iv) pest and termite proof and (v) good insulation which translate to lower mortality rate.

Key highlights

• On point execution, resulting in uninterrupted profits since 2003. Astino registered RM6.7m net profit in FY03 and continues to grow to RM22.4m in FY20, suggesting it has been growing at a CAGR of 7.4% over the past 17 years. We believe in the commodity supercycle recently, Astino may anticipate stronger earnings in FY21. Do note that besides FY03, FY09 was the only other financial year that recorded net profit of below RM10m. With the strong track record since listing, it suggests that the management execution is on point despite the cyclical nature of steel prices.

• Expansion plans on track… Currently, Astino’s production capacity stands at 170,000 tonnes and its average utilisation rate is c.71% over the past 5 years. Based on our conversation with the management, Astino is looking to expand another 30,000 tonnes to its current production capacity by FY24.

• …in line with the global recovery tone. We believe the expansion plan is timely underpinned by the broad economic recovery mode following the Covid-19 pandemic as well as the bullish steel sector. We believe the ASP will remain firm on the back of strong demand in metal products as well as supply controls in China.

Outlook

• Broad economic recovery may focus on infrastructure spending. After enduring the Covid-19 induced recession in 2020, we expect the broad based recovery to take place in 2021. Given construction and infrastructure spending may have a bigger multiplier effect towards the economy that should be the direction for governments around the world to boost their respective economy going forward. Hence, that should lift the demand for steel related products that are manufactured by Astino.

• Growing population and rising income per capita. The demand for poultry products, which include poultry, eggs and livestock feed, is mainly driven by growing populations and the rising income per capita, while the growth rate of the poultry sector will depend on the maturity of the sector in different countries.

• Higher growth rate in regional countries. The poultry sector is expected to grow at a higher rate in countries where poultry consumption per capita is still low such as Indonesia (7.9kg in 2020), Vietnam (13.6kg in 2020), Philippines (13.7kg in 2020), and Cambodia (2.5kg in 2018) as compared to Malaysia, where the poultry consumption per capita is 49.3kg in 2020, according to statista website.

• AHMS to benefit from the growing poultry sector. Given the poultry outlook is on a growing trend regionally, we believe Astino that has served these regions such as Southeast Asia, South Asia, Oceania and Middle East should be having sustainable growth in the coming years.

Financials

• Given the continuous effort by the management throughout the years achieving 18 consecutive years of profits, we believe Astino will be able to register decent profits in the coming years. Moreover, with the commodity supercycle that saw an increase in its average selling prices for their products, we could safely derive a record earnings year in FY21f.

• For FY21f-22f, we opine that the revenue will expand 10%-24% to RM646.0-708.1m, respectively on the back of firmer local market demand following the broad market recovery after the Covid-19 pandemic. Meanwhile, we believe the increase in steel price may reflect in their net income, rising by 3.4-125% to RM50.5-52.2m, respectively for FY21f-22f.

Valuation

• At this market capitalisation of RM424.9m, Astino is trading at FY21f-22f of 8.4- 8.1sx, respectively. We think Astino’s valuation can be justified using a P/E multiple of 11x, pegging to the FY22f EPS of 19.76 sen, arriving at a fair value of RM2.17.

• Although Astino has no dividend payout policy, we believe the management will reward its shareholders. Based on the past track records, Astino has been dishing out 1.0-2.9 sen per share per year over the past 10 years, translating to dividend yield ranging from 0.6-1.8%. Based on our forecast, we expect Astino will reward roughly 1.8-1.9sen in FY21f-22f, translating to dividend yield of 1.2%.

Source: Mplus Research - 16 Jun 2021