1HFY21 results were within expectations with top-line remaining consistently robust despite the pandemic lockdowns due to strong export sales, sustained demand for its dairy products and contribution from its recent acquisition - Sri Nona Group. EBITDA margins remained fairly stable due to cost discipline and hedging activities. A recovery play, we upgrade the counter to OUTPERFORM as we raised our TP to RM33.15.

Within expectations. 1HFY21 CNP of RM240m accounts for 57%/55% of our/consensus estimate. We deemed this to be within expectations as historically 1H takes up c.55% of the group full-year earnings. Dividend declared is in line with a DPS of 27.0 sen.

YoY, Top-line saw a 3% growth to RM2.18b as Malaysian operation (+4%) saw better performance than its Thailand counterpart (+1%) due to higher beverage sales, sustained demand for dairy products, strong exports and maiden contribution from the Sri Nona Group. Thailand’s performance was offset by slower offtake in value offers/promotions as the economy slowly recovered from the pandemic. GP margin saw a slight dip (90bps to 30%) due to lower export margins, higher commodity prices and spike in international freight charges but offset by higher margins from its Thailand operation due to phasing of A&P spending. EBITDA margin was stable given its cost discipline as opex fell 6%. CNP of RM240m (+4%) was further boosted by a lower ETR (19%) attributed to tax incentives enjoyed by its Thailand subsidiary in 1QFY21.

QoQ, while historically 2QFY is a weaker quarter, top-line maintained its robust performance at RM1.09b (+1%) amidst a gradual recovery in both the domestic and Thai economies, supported by double-digit export growth which was offset by subdued Chinese New Year festivities. Its Thailand operation saw better performance (+2%) vs. Malaysia (-1%). PBT fell 12% to RM139m on the back of lower export margins and higher commodity costs but mitigated by contribution from the Sri Nona companies.

Boosted by the Sri Nona companies. While the prospect of a 3rd pandemic wave and travel restrictions likely to continue to temper with the earnings recovery, we expect the 2H to continue to be robust given the less restrictive lockdowns as compared to MCO 1.0. As shown in the last two preceding quarters (supported by a resilient in-home consumption) top-line continued to be robust and on an uptrend. The group’s recent acquisition of the Sri Nona Group (which is involved in the manufacturing and sale of ketupat, condiments and beverages) are bearing fruit and likely to contribute immensely in 3QFY21 due to the festive season. While volatile commodity prices are still a concern, we take comfort in the Group’s hedging activities and cost discipline which have kept EBITDA margins fairly stable. We further take comfort in its net cash of RM579m implying capex will be funded through internally generated earnings, hence funding cost will be negligible.

Post results, we make no change to our FY21E/FY22E numbers as the results are deemed to be within expectations.

Moving forward, we raise our TP to RM33.15 (from RM32.55) as we apply a higher PER of 28.5x implying 0.5SD below its 3-year mean – which we feel is justified given its robust earnings despite the pandemic coupled with a sturdy balance sheet holding up well to challenging margins given volatile commodity prices. Upgrade to OUTPERFORM.

Risks to our call include: (i) slower-than-expected growth in Thailand F&B business, and (ii) higher-than-expected operating costs

Source: Kenanga Research - 5 May 2021