9MFY22 came in line with both our/consensus expectations on account of a robust domestic market. Moving ahead, the easing of movement restrictions will see domestic sales remaining robust coupled with better ASPs. The MENA market remains challenging due to sugar tax and lower margins. Given the still volatile raw materials prices, our TP is unchanged at FM1.35 and we reiterate MARKET PERFORM.

In line. 9MFY22 PATAMI of RM14m is in line, accounting at 76%/70% of our/consensus estimates as the domestic market continued to be robust. A third interim of DPS of 1.2 sen was declared firming total DPS YTD to 2.9 sen (in line).

Domestic lead the way. YoY, revenue growth grew +3% to RM251m underpinned by the domestic market (+28%) of RM152m offset by a still weak export market (-21% to RM99.0m). No major erosion seen in gross profit margin which we believe was due to: (i) better ASPs, and (ii) raw materials prices well locked into the rest of the financial year with coffee bean prices locked in until Sep 2022. EBITDA fell 42% to RM21.4m with margin crimped by 6ppt to 9% on account of higher spending on advertising and promotion (A&P) both in the local and overseas markets. A higher ETR (+2ppt) saw PATAMI slumping 48% to RM13.6m.

QoQ, sale improvements in both the domestic (+20% to RM58.9m) and exports (+15% to RM36.7m) drove revenue to RM95.5m (+18%). GP margin remained robust given the improved ASPs and prudent hedging. EBITDA saw +13% uptick to RM9m but margin saw slight erosion (-1ppt) given the rising A&P costs. PATAMI saw +8% uptick to RM6m as ETR saw another 2ppt uptick to 21%.

Outlook. We believe FY22E top-line will reach our initial estimate of RM330-340m, premised on the easing of movement restrictions in the domestic market. Margins will continue to be challenging given the raw materials prices and higher operating costs coming from higher A&Ps as the group strives to improve demand via new and old SKUs. On a postive note the improved ASPs are expected to adequately cover the implementation of domestic sugar tax in April 22. Export market will be weighed down by the weaker demand from the Middle East markets – due to a combination such as: (i) lower purchasing power, (ii) sugar tax, and (iii) unfavorable forex, and it is unlikely to reach its pre-pandemic levels in the immediate terms. Margins for the MENA market is still a challenge given the sugar tax with PWROOT unlikely to pass it on to consumers for fear of driving down demand – but any margin erosion is expected to be offset by offering alternative solutions such as more sugar-free products or cheaper-priced alternatives to mainstream products which would probably come on-stream in the immediate term.

Post results, as results are in line, we make no changes to our FY22E/FY23E earnings.

MARKET PERFORM. TP is unchanged at RM1.35 based on FY23E PER of 18x in line with its 5-year mean at -0.5SD to account for its weak export markets (coming from MENA) and volatile raw materials prices undermining margins. Maintained at MARKET PERFORM.

Risks to our call include: (i) lower-than-expected sales, and (ii) unfavourable Ringgit.

Source: Kenanga Research - 28 Feb 2022