• Maintain NEUTRAL with unchanged TP of MYR3.66, offering 0.3% total upside including dividend yield, derived from target FY20F P/E of 17x (5- year mean). 9MFY19 earnings came in broadly within expectations, as 4QFY19 earnings are likely to be weaker. The operating environment is expected to remain challenging moving forward, while earnings growth is projected to come from improved operational efficiencies. The stock continues to offer attractive prospective yields of 6.3-7.6%, backed the group’s sturdy balance sheet and established brand names.

• Broadly in line. 3QFY19’s (Apr) core earnings of MYR4.5m (+113% YoY, -10% QoQ) were broadly within our forecast, as we expect 4QFY19 to be seasonally weaker due to a shorter working month in February. This brings the group’s cumulative 9MFY19 core earnings to MYR13.8m (+42% YoY). After two consecutive quarters of weaker sales, Apollo’s 3QFY19 revenue rebounded, growing by 11% YoY and 10% QoQ. Margins remained stable. No dividend was declared.

• Market to remain competitive. Management expects the operating environment to remain challenging moving forward, in view of increasing raw material costs and volatile FX. The competitive market will likely limit Apollo’s sales growth, coupled with the absence of any significant expansion plans or new product launches. Earnings growth should therefore be driven by improvement of operational efficiencies.

• Forecasts and key risks. We make no changes to our earnings forecasts. Downside risks to our TP and recommendation is higher-than-expected input costs, while upside risk is the diversification into new product lines.

• Maintain NEUTRAL on the stock, considering the lack of catalysts to drive its future earnings growth. The challenging environment could pose downside risk to its earnings. Nevertheless, Apollo continues to offer attractive dividend yields of 6.3-7.6%, backed by its sturdy balance sheet as well as long-standing good track record, and established brand name. No change to our TP of MYR3.66, offering 0.3% total upside (7.3% downside to our TP plus 7.6% FY20F dividend return), derived from a target P/E of 17x (5-year mean) on FY20F earnings.

Source: RHB Securities Research - 29 Mar 2019