INVESTMENT MERIT

 Time to take a second look? Following a few challenging years, ASIAFLE was neglected for sometime. The group’s top line had grown at a CAGR of 14% (FY11-FY13), but its net profit declined by -8% over the same period due to the intensely competitive market for files. Nevertheless, we reckon that a lot of negativity towards the stock could have been priced in. In fact, profitability has begun to show signs of improvement with ASIAFLE recently posting a 25% YoY jump in its 1H14 net profit.

 Going against the grain. In recent years, the global files' market had been undergoing a lacklustre environment with industry players gradually opting out of this challenging market. Instead, ASIAFLE had grown its presence in the European markets via a string of (i) acquisition of its competitors, (ii) integration of its supply chain and (iii) strategic alliances.

 Foray into the European market. In particular, ASIAFLE’s strategic alliance with a competitor in Czech Republic recently has opened up opportunities to further expand into the huge yet fragmented European files and stationery market. At the same time, its acquisition of a paper mill and paper filing product manufacturer in the UK (over the last 1-2years) has enabled the Group to step up its efforts to integrate its supply chain and gain better control in its distribution channels. Through these measures, we reckon that ASIAFLE has managed to grow its topline and expand its margins, as operational efficiencies come to fruition (note that 1H14 net margins have expanded by 3.4ppt YoY).

 Realising synergies! Going forward, we expect the impact to ASIAFLE’s earnings to be even more pronounced now as the group has a firmer grasp of the European files' market and c.60% market share in the UK alone. Greater pricing power, a wider distribution network and cost-related efficiencies are among the key factors underlining our 24% and 15% earnings growth projections for FY14-FY15E (RM53.4m-RM61.3m) and we would not rule out further M&A activities or diversification into different products, given ASIAFLE’s net cash position of RM46.1m (40 sen cash per share).

 Trading Buy with a TP of RM4.61, based on a targeted 9x CY14 PER (in line with the group’s 3-year Average PER). Meanwhile, we also estimate the Group to reward to shareholders with a 25.5 sen DPS for CY14 (Dividend Yield of 6.0%), bringing its potential total return to 14% from here. 

TECHNICALS

 Resistance: RM4.45 (R1), RM5.00 (R2)

 Support: RM3.95 (S1), RM3.60 (S2)

 Comments: ASIAFLE’s share price has confirmed a major bullish reversal after breaking out of a channel resistance in September. While the share price appears to be pausing for breath, the technical picture suggests that ASIAFLE could resume its uptrend towards the RM5.00 resistance (R2).

BUSINESS OVERVIEW

 ASIAFLE is primarily engaged in manufacturing and marketing of various filing and stationery items. As an integrated files manufacturer, the Group offers a wide range of products made from paperboard, plastic and metals.  The Group has a presence in more than 80 countries with sales offices set up in Germany, United Kingdom, United States, Middle East and Singapore. Locally, the Group remains as No 1 files manufacturer in Malaysia with a comprehensive distribution network of more than 650 retailers and office suppliers.

BUSINESS SEGMENTS

 ASIAFLE’s business segments include manufacturing and trading of stationery products.

 The Company's product portfolio includes plastic folders, sheet protectors and flat files, filing/storage boxes, lever arch files, ring/presentation binders, clipboards and clipfolders, desk and office accessories, labels and paper products, manila files and folders and marker and whiteboard accessories.

Source: Kenanga