Summary

• ASIAFLE 1Q24’s core net profit came in at RM16.0m (+70.8% QoQ and +97.1% YoY). The results were significantly above ours and consensus expectations at 41% and 49%, respectively. The key deviations were due to the stronger-than-expected profits from the filing division due to favourable exchange rates and better margins for the segment during the quarter review. There was no dividend paid during the quarter.

• QoQ. Despite the revenue dropped 3.3% QoQ, the core PATAMI increased 70.8% on the back of favourable exchanges rates as both the Sterling Pound and Euro strengthened against local currencies and also improved cost management i.e. the delivery cost. The forex gain was RM9.3m in 1QFY24 as compared to lower forex gain of RM2.9m in 4QFY23.

• YoY. Similarly, the core PATAMI soared 97.1% to RM16.0m in 1QFY24 from RM8.1m in 1QFY23 due to the similar factors in QoQ. The forex gain was RM9.3m in 1QFY24 as compared to forex loss of –RM1.9m in 1QFY23.

• Outlook. We think the overall demand will be softer due to weaker consumer spending activities amid heightened inflationary pressure environment. However, we expect the group’s margins will remain strong due to better cost management and favourable forex against the ringgit. Also, with the new products being launched recently in the consumer and food ware, the group will make some inroad into the oversea markets and may provide additional avenue for the sales going forward.

Valuation & Recommendation

• Given that the reported earnings came in above our expectation, we revised the forecasted earnings higher by 31%, 23% and 17% to 50.6m, RM52.4 and RM54.6m respectively for FY24-26f. The revised forecast will account for improved margins in the filing division due to favourable forex conditions as well as improved cost management for the group.

• Hence, we maintain the BUY recommendation on ASIAFLE, with a revised target price of RM2.60 (from RM1.98), representing an upside of 38.3%. The target price is derived by ascribing a P/E of 10.0x to FY24f EPS of 26.0 sen. Also, we like the group’s net cash position of RM277.6m as at 1QFY24.

• Risks to our recommendation include the possibility of heightened inflation caused by supply chain disruption, potentially leading to an elevated operating costs environment. Besides, the group faced with foreign exchange risks as its export proceeds are primarily denominated in GBP and EURO while import is predominantly priced in USD. Any further depreciation of GBP/MYR or EUR/MYR could exert pressure to the group’s margin.

Source: Mplus Research - 1 Sept 2023