Growing beyond Asian horizons into the international markets. 3A’s products can be divided into five main categories, namely: (i) caramel, (ii) vinegar, (iii) Hydrolysed Vegetable Protein (HVP), (iv) glucose and (v) maltodextrin. These ingredients are relatively recession-proof (underlying demand growth ~3-5% pa) as they are crucial components for a wide cross-section of F&B manufacturing processes, and all ingredients are Halal and Kosher certified (to meet customers’ stringent requirements).

Despite the tough operating environment, 3A’s earnings has grown at a stable 10Y CAGR of 7.5% from FY11-20, driven by hands-on management, increased product range and rising export sales (FY20: 48% of revenue; FY19: 39%), import substitution, better sales mix, prudent expansion and committed R&D initiatives to broaden the range and appeal of its products. Moreover, as a raw material supplier to food manufacturers, 3A is relatively protected from the vagaries of demand brought upon by shifts in consumer preference for a particular brand.

Positive prospects and sound balance sheet. 3A responded with commendable resilience during the Covid-19 pandemic in 2020-2021, delivering a 77% surge in 9MFY21 earnings, riding on (i) the reopening of the economy and a pick-up in business activities, (ii) better profit margins due to the improvement in operational efficiency and higher ASP, and (iii) increased automation plans to improve production plant efficiency and achieve savings in operational and manpower cost. Valuation is undemanding at 9.7x FY22E PE (28% discount against its peers, supported by FY20 -23 EPS CAGR of 23% and strong net cash of RM60m or 12sen (~12% to share price).

Poised for a bullish triangle breakout. After slipping 16% from 52-week high of RM1.15 (12 Nov) to a low at RM0.965 (15 Dec), the stock recovered 7.8% to end at RM1.04 yesterday. We expect a bullish triangle breakout soon, as share prices are trading above multiple major MAs. A successful breakout above RM1.07 (downtrend line from RM1.15) would signal that a new up-leg has begun to retest RM1.10-1.15- 1.21 levels. Collection rage is RM1.00-1.06. Cut loss is RM0.99.

Source: Hong Leong Investment Bank Research - 10 Feb 2022