• 1QFY21 core net profit rebounded by 38% qoq to RM14m, accounting for 14%-16% of the consensus and our full-year estimates.
• Results are within expectation as earnings delivery is likely to remain favourable on firm orders from its key customer.
• However, in view of the limited upside, we downgrade AIB to a HOLD at an unchanged TP of RM1.40.

Encouraging Signs of Recovery in 1QFY21

AIB’s 1QFY21 core net profit rebounded by 38% qoq to RM14m (-41% yoy) on the higher revenue (+3% qoq, largely due to improved sales orders from its key customer) and higher EBITDA margin (+0.7ppts qoq to 4.4% on improved efficiency). During the quarter, we learnt that AIB took pre-emptive measures to contain operating costs by reducing its production workforce, in case order flows soften amid the worsening Covid- 19 pandemic. Overall, the earnings accounted for 14-16% of the consensus and our full-year estimates, which are in line as we expect subsequent earnings delivery to remain favourable.

Forward Prospects for AIB Look Healthy

Management guided that order flows from its key customer remain strong. The group began production for one of the two floor-care product projects for the key customer in July20, and the second project is still slated for production in Nov20. We learnt that the key customer had recently launched its 1st project in Korea: the floor-care project features the key customer’s first multi-directional vacuum cleaner head, which helps consumers to remove dust from tight spaces. Besides the key customer, AIB indicated that projects from 5 new customers (ex. Swiftlabs) are also progressing well. Given the improving demand, AIB is planning to increase its production capacity by acquiring c.70 new injection moulding machines.

Downgrade to HOLD With An Unchanged TP at RM1.40

We keep our earnings estimates unchanged, pending further updates from the upcoming results briefing. Following the 36% run-up in the share price over the past three months, we believe the stock is now trading at a more justifiable valuation. We maintain our 12-month TP of RM1.40, pegged to 16x CY21E EPS. Given the limited upside, we downgrade AIB to a HOLD from Buy. At a 15x FY22E PER, the valuation looks fair. Key upside risks: i) an effective vaccine for Covid-19, and ii) stronger-thanexpected demand. Downside risks: i) key customer risk; ii) reliance on foreign labour, iii) higher-than-expected start-up expenses, and iv) an economic slowdown

Source: Affin Hwang Research - 26 Aug 2020