According to management, Pulau Indah’s plant is facing another delay in full operation as expectation of commencement in October is pushed to December 2018. The plant is still operating on trial basis and their paratha and chapatti line is yet to be relocated.
The recent financial result reflected 66% of the export markets revenue was negative in comparison to 1HFY17. North America holds 41% of the export sales, registered a 27% decline from RM29.7m in 1HFY17 to RM21.8m. Europe, Africa and Oceania also recorded sales decline with 3.4%, 24.7% and 4.8% respectively in 1HFY18. We estimated a reduction between 2-8% in revenue as sales growth in the domestic market and rest of Asia remain positive.
The new plant is expected to incur higher electricity costs due to higher volume production capacity (5,000 paratha pieces/hr) and larger cold room requirement. The delay faced is expected to add a 5% increase in operation cost from RM118m to RM126, accumulated to a 60% margin cost.
We revised our FY18/FY19/FY20 earnings forecast 30% lower as we expect growth remain to be modest and unexciting for FY18. We lowered our export sales and increase the production costs assumptions. We maintain our HOLD recommendation with a revised TP of RM2.20 after we applied 28x PER rolled over to FY19.
Source: BIMB Securities Research - 27 Sept 2018
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