FY20 earnings declined tremendously amidst the Covid-19 pandemic and travel restrictions, resulting in poorer sales volumes and product prices. While 4QFY20 was badly affected by the implementation of CMCO, we expect the upcoming 1QFY21 to be worse hit by the re-imposition of MCO in January 2021. Maintain UNDERPERFORM, with TP of RM17.60.

FY20 below expectations. FY20 core net profit of RM285m came in below expectations at 87% of our, and 89% of consensus, full-year forecasts, due to weak sales volume and average selling prices (ASP). However, interim dividend of 17.0 sen per share brought full-year dividends to 38.0 sen, coming in higher than expectations as the company opted for a higher pay-out ratio (>100% of PAT).

Weak results following stricter travel restrictions. FY20 core net profit plunged 65% YoY amidst the Covid-19 pandemic and travel restrictions, resulting in declined sales volumes (-23%) and average selling prices (-20%). For the individual quarter of 4QFY20, core net profit of RM99m plunged 53% QoQ. Stricter travel restrictions from the implementation of CMCO in the quarter led to a decrease in sales volume (-7%) and ASP (-2%). This was further exacerbated by higher opex during the quarter on the back of advertising and promotion activities, as well as repair and maintenance works at stations and terminals.

Still expecting weakness. Following the re-imposition of MCO in January 2021 with stricter travel restrictions, we foresee the upcoming 1QFY21 quarter to be also another badly hit quarter. Nonetheless, as more economic activities are allowed to operate during this second MCO re-imposition (as compared to the MCO last year), we expect sales volumes to be less dire comparatively this time.

Maintain UNDERPERFORM, with higher TP of RM17.60 (from RM16.00 previously), as we roll forward our valuation base year to FY22E, pegged to unchanged valuation 26x PER – roughly in-line with the stock’s historical average. Post-results, we lower our FY21E earnings forecasts by 26% as we trim our sales growth assumption, while introducing new FY22E numbers. At this juncture, we still feel the stock to be trading at rather lofty valuations (42x forward PER), and hence, reiterate our UNDERPERFORM call for now.

Risks to our call include: (i) better-than-expected ASPs, and (ii) higher-than-expected sales volumes.

Source: Kenanga Research - 22 Feb 2021