Summary

• Asia File Corporation Bhd (ASIAFLE) 3Q23 core net profit fell 17.6% YoY to RM6.4m, leading to a 32.8% YoY decline in 9M23 core net profit to RM22.3m. The results came in below expectations, amounting to 67.8% of our previous full year forecast at RM32.9m and 54.0% of consensus forecast at RM41.3m. Key deviation was mainly due to the losses of an associate of RM3.6m in the current quarter.

• YoY, the decline in core net profit was due primarily to the losses on the associate level of RM3.6m, vs. a profit of RM3.5m in the previous corresponding quarter. The mild decline in revenue was mainly due to lower demand in the local market on the back of slowing economy growth.

• For 9M23, the lower core net profit was mainly due to the share of losses of associate at RM4.7m vs. a share of profit of RM9.8m in 9M22. The group saw an improvement in revenue as revenue contribution from the Consumer and Food ware division rose 6.9% for the period. Meanwhile, turnover from the filing division remained largely unchanged.

• QoQ, core net profit slipped 17.6% after taking into consideration the share of loss from associate. Do note that on the operating profit level, ASIAFLE registered a climb of 42.2% to RM11.4m, resulting from a foreign exchange gain of RM2.1m as compared to foreign exchange losses of RM2.1m booked in the 2Q23, as both GBP and EURO recovered from its weak level against MYR and USD.

• As at 3Q23, ASIAFLE’s net cash position remained strong at RM244.7m (net cash per share: RM1.26), enabling the group to better manage the exposure to foreign currency risk on sales, purchases and borrowings.

• Moving forward, we expect the contribution from the filing products segment to remain steady while the Consumer and Food ware division should continue to grow. Nevertheless, heightened price awareness among consumers amid higher exposure to online marketing platforms may pose a risk to the group’s performance. ASIAFLE remained committed to increase its sales and marketing activities on various Ecommerce channel to reach a wider range of customers.

Valuation & Recommendation

• Although the reported earnings came in below our expectations, we believe the decline was due to the share of losses from associate. In anticipation of a better performance from associate, we maintain our earnings forecast for FY23f, FY24f, and FY25f at RM32.9m, RM41.2m, and RM45.6m. The earnings forecast will take into account the fluctuate GBP/USD and EURO/USD, as well as the potential higher operational costs.

• We maintained our HOLD recommendation on ASIAFLE, with an unchanged target price of RM1.69. The target price is derived by ascribing a P/E of 10.0x to FY23f EPS of 16.8 sen.

• Risks to our recommendation include potential supply chain disruption which could result in a variety of business costs. Besides, the group is exposed to foreign currency risk as its export proceeds are primarily denominated in GBP and EURO while import is mainly priced in USD. Any further decline in GBP/USD or EURO/USD may put pressure to the group’s margin.

Source: Mplus Research - 1 Mar 2023