FY19 – challenging year, lower revenue and core net profit

Atlan FY19 posted lower revenue and core net profit; yoy fell by 6.2% and 43.1%, made up 93.6% and 65.3% of our forecast respectively. Lower revenue and core net profit were mainly due to weakness in its duty free and property & hospitality segments.

Duty Free Segment - by lower revenue and higher operational expenses

Atlan core business Duty Free posted lower revenue of RM555.7m for FY19, fell by RM63.3m or 10.2% yoy, mainly due to product shortage issue in 1H FY19, decrease in demand for certain products and change in sales mix. FY19 PBT of RM58.7 fell by RM23.5m or 28.6% due to lower revenue recorded and exacerbated by higher provision for inventories written down and increased transportation cost.

Maintain Buy with unchanged Target Price

FY19 was a challenging year for Atlan, affected by headwinds that include product shortage, tax dispute with customs departments and cautious consumer spending nonetheless duty free segment’s revenue has bounced off its recent low of RM114.4m in Q2FY19 and has improved over the quarters and likely to sustain at this level thus maintain our forecast. We continue favor Atlan for its growth potential, resilient earnings and sustainable dividend payout. We maintain BUY recommendation with unchanged target price of RM5.70 based on SOP valuation.

Automotive segment improve yoy

The automotive segment registered higher revenue and PBT, yoy increased by 6% and 30% respectively mainly due to higher orders and recovery of certain costs which was previously charged out from a customer.

Property and hospitality segment dragged by weak tourist arrivals and competition

The property and hospitality segment posted lower revenue and PBT, yoy down by 9.1% and 28.6% respectively, poor performance due to lower occupancy rate, lower average rental rate and higher operating expenditure

Dividend 20 sen for FY19

Cumulative dividend for FY19 was 20 sen is in-line with our expectation.

Bill of demands totaling RM41.6m from customs department

Pending decision by Court of Appeal after the hearing conducted on 6 Mar 2019. The company after consultation with its solicitors, strongly believe that there is no legal and/or factual basis for the said Bills of demand. Our forecast did not factor in the contingent liability and expenses in relation to the tax dispute.

Source: Mercury Research - 2 May 2019