Review

• Able Global Berhad’s (ABLEGLOB) 1HFY23 core earnings of RM16.0mn came in below expectations at 42% and 44% of our and consensus’ fullyear estimates respectively. The negative variance chiefly attributed to weaker demand in tin manufacturing as well as rising production costs.

• The group declared second single-tier interim dividend of 1.5sen/share (2QFY22: 1.5sen/share), bring the YTD dividend to 2.5sen/share (1HFY22: 2.0sen/share)

• YoY, ABLEGLOB’s 1HFY23 revenue rose 6.9% to RM302.4mn, thanks to resilient sales demand in F&B division as evidenced by improved segmental topline of RM249.3mn (+13% YoY), albeit partially offset by decline in tin manufacturing segmental revenue which logged at RM53.1mn (-14.7% YoY) due to lower-than-expected sales demand. That said, the group’s adjusted net profit slipped 12.4% due to elevated cost of production in the tin manufacturing segment.

• QoQ, 2QFY23 revenue grew 6.9% QoQ to RM156.3mn driven by significant improvement in F&B segment due to robust sales demand, despite offset by the decline in tin manufacturing segment. In line with revenue growth, the core net profit registered at RM8.2mn (+5.4% QoQ).

Impact

• We cut our earnings forecasts for FY23/FY24 by 15.5%/2.8%, respectively, to reflect our cautious view in the tin manufacturing segment given its intense competitive landscape and elevated production cost.

Outlook

• The tin manufacturing outlook has become increasingly uncertain due to a highly competitive environment. However, there is a glimmer of optimism on the cost front as the cost of steel is anticipated to gradually decrease in the near term.

• On the brighter note, the cost of raw milk powder has come down significantly since the peak in 2022 against the backdrop of stronger sales demand for dairy products, albeit partially muted by elevated raw sugar price. We believe the EBIT margin would be gradually improving should there is no hiccup from the potential export ban on sugar from India.

Valuation

• Following the earnings cut, we downgrade ABLEGLOB to Hold and lower our TP to RM1.50/share (previously RM1.55/share) based on SOP valuation method.

Source: TA Research - 28 Aug 2023