2QFY20 – disappoint, profits dive amid lower margin and nonrecurring expenses, downgrade to Hold

2QFY20 – revenue down 1.4%, core net profit down 69.4% yoy

Atlan 2QFY20 posted marginally lower revenue RM167.6m (2QFY19: RM170.0m), down 1.4% and core net profit RM3.1m (2QFY19:RM10.1m) down 69.4% yoy and while cumulative 6 months revenue higher by 7.4%, RM365.8m (FY19H1:RM340.5m), core net profit halved, RM7.3m (FY19H1:RM15.2m), accounting only for 45.2% and 34.9% of our estimate. Despite lower profit, the Group maintain its dividend payout and declared 2nd interim dividend of 5.0sen.

Duty Free division – lower profit in spite of higher revenue

Core business Duty Free division posted 8% higher revenue RM250.0m for FY20H1 (FY19H1:RM231.6m), increase in revenue was contributed from Brand Connect Group which was acquired on 8 Aug’18, partly offset by lower revenue from Duty Free business. Albeit higher revenue, PBT down 36.2% to RM15.8m (FY19H1: RM24.8m) due to lower profit margin, higher professional fees, higher inventory write down, higher depreciation and amortisation expenses and lower unrealized foreign gain. The property, plant and equipment written off was from the closure of certain outlets in KLIA2.

Downgrade to Hold with lower Target Price of RM4.46
In view of challenging business environment, we expect the Group’s performance to remain soft, consequently downgrade our recommendation from Buy to Hold with lower TP of RM4.46 based on SOP valuation.

Source: Mercury Research - 15 Oct 2019