Summary

• Broadly in-line. For 2QFY24, Asia File Corporation Bhd (ASIAFLE) registered core earnings of RM6.9m (-57.0% QoQ, -11.5% YoY), bringing the sum of 1HFY24 core earnings to RM22.9m. Despite the core earnings only accounted to 45% of our estimates (75% of consensus estimates) it is deemed to be broadly in-line as GBP and EUR has regained momentum, which may contribute to better 2HFY24 results. No dividend was announced in the quarter under review.

• QoQ. Revenue has improved 4.5% QoQ to RM79.0m attributed to the increased in both the filing and Consumer and Food ware divisions 4.0% and 7.6% QoQ to RM68.1m and RM10.9m, respectively. However, the core PATMI dropped significantly by 57.0% from RM16.0m as it was impacted negatively by foreign exchange loss of RM4.0m.

• YoY. Core PATMI declined 11.5% from RM7.8m in 2QFY23, no thanks to (i) steeper foreign exchange losses and (ii) higher tax expense for the quarter.

• YTD. For 1HFY24, the group’s revenue dropped 6.1% YoY, but the core PATMI increased 43.9% to RM22.9m, as a result of better cost control and well execution of various marketing strategies. Partly, strong gains from foreign exchange in 1QFY24 lifted the overall earnings for 1HFY24.

• Outlook. Despite the challenging global and domestic business environment with the heightened inflationary pressure coupled with the elevated interest rate environment, we expect both the filing and Consumer & Food ware segments with the promising demand in 2HFY24 on the back of recovery in consumer spending during the festive season. Also, we expect sales from both the segments will continue to generate positive cash flow for the group.

Valuation & Recommendation

• Forecast unchanged. Given that the core earnings came in broadly within our expectations, we maintained the forecasted earnings at RM50.6m, RM52.4m and RM54.6m over FY24-26f.

• Maintained BUY with TP of RM2.60. We maintained the Buy recommendation on ASIAFLE, with a target price of RM2.60. The target price 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 RM294.8m (74% of the current market cap of RM400.0m) as at 1HFY24.

• Recommendation risks include the (i) supply chain disruptions, which may translate to higher operating costs and (ii) foreign exchange risks as its export proceeds are mainly denominated in GBP and EUR, while import is predominantly pried in USD. Any depreciation of GBP/MYR or EUR/MYR could exert pressure to the group’s margin.

Source: Mplus Research - 1 Dec 2023