Able Global Berhad’s (AGB) 2QFY24 core net profit jumped 119% YoY to RM18.3m, as both Tin Manufacturing and F&B segment posted stronger earnings contribution. 1HFY24 core net profit of RM33.8m were above our and consensus estimates, accounting for 57% and 56% of our full-year forecasts respectively. The discrepancy in our numbers was mainly due to lower-than-expected raw material costs. As such, we raise our FY24-26F numbers by an average of 10%, as we lower our input cost assumption. We remain optimistic on AGB’s future prospects, underpinned by the resilient demand for dairy products, potential margin expansion on stable raw material costs and stronger contribution from its Mexico operations. We maintain our Outperform call and a higher SOTP-based TP of RM2.55 following our earnings adjustment. On a side note, AGB declared a higher DPS of 2sen (2QFY23: 1.5sen), bringing the YTD dividend declared to 4sen.

• Results review. AGB’s 2QFY24 revenue grew by 14.7% YoY to RM179.2m, as both Tin Manufacturing (+26.8% YoY) and F&B segment (+12.3% YoY) recorded stronger sales. After adjusting for non-core items, AGB’s core net profit came in at RM18.3m, rising 119% YoY, likely driven by better production efficiency from both segments and lower input costs. As a result, AGB saw its EBIT margin expanded by 6.5 ppts to 15.1% (2QFY23: 8.6%).

• Mexico operations. On the other hand, AGB’s Mexico operations slipped into a loss of RM0.4m, mainly due to unfavourable currency fluctuations. We gather that exports from its Mexico operations have been increasing steadily and is currently running at a higher utilization rate of 35-40% (previously 25-30%) as the group has started to export full range of products (full cream and filled milk) to US.

• Outlook. We are optimistic on AGB’s earnings growth, as we foresee demand for dairy products to remain resilient, given the defensive nature of its business. We expect stronger contribution from its Mexico operations, on stronger exports to neighbouring countries especially to the US. In addition, we believe that the impact from strengthening of MYR against the USD on AGB’s exports to be minimal, as a significant portion of its raw materials are denominated in USD. Furthermore, the lower raw material costs should translate to an uptick in profit margins going forward. Note that milk prices have stabilized (-c.5% YTD) while sugar prices have declined by -c.20% YTD.

Source: PublicInvest Research - 29 Aug 2024