Off to a Good Start

• MTAG reported a commendable set of results, as 1Q FY21 core net profit rose by 18% yoy to RM10m (+98% qoq)
• 1Q FY21 results were slightly above expectations, making up 28% of our full-year forecast
• Raising our FY21-23E EPS by +7%/+12%/+18%; maintaining Hold rating with a higher target price of RM0.82 (from RM0.75)

Results in Line

1Q FY21 revenue and core net profit respectively rose by 13% and 18% yoy, benefitting from higher contributions from both converting and distribution segments and improved margins likely from higher cost efficiency. Overall, results were above our expectations, accounting for 28% of our previous full-year estimates. MTAG has declared a 1sen interim dividend for 1Q FY21.

A Strong Recovery From a Low Base Effect

Sequentially, 1Q FY21 revenue rebounded by 86% qoq to RM55m, recovering from the 4Q FY20 low base as MTAG’s business operations returned to normalcy since mid-May 2020, following the relaxation of the Movement Control Order (MCO) by local governments. This has also led the EBITDA margin to recover by 1.5ppts qoq, resulting in core net profit increasing by 98% qoq.

Prospects looking favourable for both converting and distribution segments

Moving ahead, we believe MTAG’s prospects remain favourable. The printing & converting arm will continue to ride on its indirect key customer’s robust order flow, aggressive R&D roadmap, innovation and growth prospects. Furthermore, we expect MTAG’s distribution arm to continue doing well in the coming months as 3M Co’s personal products are reported to be booming, as people sheltering at home tend to purchase more consumer goods (ie, cleaning supplies and painter’s tape). Taking these into consideration, we raise our FY21-23E EPS by +7%/+12%/+18%.

Maintaining Hold Rating; Raising Our TP to RM0.82

Post our earnings upgrades, we raise our 12-month target price to RM0.82, based on an unchanged CY21E PER of 14x, representing a 30% discount to its peers. We maintain our Hold rating as we believe current valuation has priced in the positives. Key upside risks involve better-than-expected orders flows from its key customer and stronger margins. Downside risks: a potential downturn in the household appliances industry and further economic slowdown

Source: Affin Hwang Research - 24 Nov 2020