Three-A Resources (3A) net profit for 3QFY21 doubled to RM12m, attributable to higher average selling prices and the lower operating expenses. Cumulative 9MFY21 net profit came in at RM37.9m. The results were above our expectations, accounting for 90% of our full-year forecast. The discrepancy in our earnings forecast was mainly due to lower-than-expected operating expenses. We are adjusting our FY21- 23F forecast upwards by 16-20% to reflect better operating margins. We continue to favour 3A as we are expecting the demand for F&B products to improve, riding on the reopening of the economy and a pick-up in business activities. Following our earnings adjustment, we maintain our Outperform call on 3A with a higher TP of RM1.60 (previously RM1.35), based on a 15x FY22F EPS.

• 3QFY21 revenue grew by 1.3% YoY to RM115.3m, mainly due to higher average selling prices of product sold. Malaysia remained the largest sales contributor to the group, accounting for 54% of the sales. While local sales increased by 4.1% YoY, this was partially offset by lower export sales(-2.1% YoY).

• 3QFY21 net profit doubled YoY to RM12m, as net profit margin improved to 10.4% (3QFY20: 5.2%). We attribute this to better profit margins due to the improvement in operation efficiency and higher average selling prices as the group passed on the increase in raw material cost.

• Dividend. 3A declared an interim dividend of 2.2sen and a special dividend of 0.8sen, bringing the total dividend declared to 3sen.

• Future prospects. In order to mitigate the impact of higher raw material prices, 3A remains committed on its automation plans to improve production plant efficiency and to reduce reliance on foreign labour. In addition, the group will continue to focus on R&D initiatives to broaden its product range to meet the constantly evolving customers’ requirements.

Source: PublicInvest Research - 18 Nov 2021