Results

• In 2Q23, Yenher reported revenue of RM89.0 million, marking a significant 13.5% QoQ increase but a 12.9% decline YoY. Similarly, net profit of RM6m exhibited robust double-digit growth at 20.0% qoq but experienced a marginal drop of 1.6% yoy.

• Results below expectation. Yenher's 6M23 revenue and net earnings are both below our estimates, coming in at 43% and 38%, respectively, of our and consensus forecasts for the full year.

• Impressive QoQ. Higher net earnings of RM6.0m (+20.0% qoq) were recorded, thanks to the increased revenue of RM89.0m (+13.5% qoq), primarily attributable to the distribution activity, which has grown by RM9.35m to RM63.1m. Currently, the distribution segment remains the main revenue contributor to the Group.

• Marginal drop in YoY. Compared to 2Q22, bottom line declined by 1.6% YoY due to a decrease in revenue, primarily caused by reduced sales of grain and oil seeds, veterinary vaccines, and feed additives. This decline in revenue also resulted in a slight drop in net earnings for the year-to-date period of 6M23, which was mainly attributable to lower gross profit in the current period.

• Improved net profit margin. Net profit margin in 2Q23 improved by 0.4 ppts qoq and 0.8 ppts yoy to 6.7% from 6.4% and 6.0%, respectively.

• Net cash. The group does not have any borrowings as of 1H23. Cash balance stood at RM68.8m representing an increase of 153% from the financial year end 2022.

• Dividend declared. The management has declared a 1.5 sen dividend for the current quarter. The total dividend payout for 6M23 entails 39% of our full year DPS forecast of 3.8 sen with DPR assumption of 40%, yielding at 4%.

Comments

• Outlook. The management expects 2023 to be another challenging year due to the ongoing outbreak of animal diseases in Malaysia, which continues to impact their customers. Despite these challenges, Yenher remains committed to delivering excellent service to the market, leveraging their position as a major integrated onestop solution provider. We maintain a positive outlook for Yenher, considering their plant expansion plans and the anticipated sales of ASF vaccines.

Earnings Outlook / Revision

• Earnings forecast lowered. We have reduced our net earnings estimates for FY23f to RM24.7m (marking a 14% decrease from our previous forecast of RM28.8m) and RM26.1m for FY24f (-6% from our previous forecast of RM27.9m), after factoring in the slowerthan-expected sales in both the manufacturing and distribution segments. No change to our FY25f net earnings estimates.

Valuation and Recommendation

• Valuation. Maintained BUY call with a lower target price of RM1.03 (previously at RM1.13) as we slashed our net earnings estimates. The target price is based on DCF assumption of 2.5% perpetuity growth, with 5% WACC. The given target price implies 12.5x PER based on FY23f EPS of 8.2 sen.

• Risk. 1) Possibility that the ASF vaccine might not receive approval from the authorities. 2) The new plant's schedule being postponed. 3) Dependent on the livestock industry population. 4) Outbreak of animal diseases. 5) Market’s competitive landscape.

Source: JF Apex Securities Research - 1 Sept 2023