We came away from yesterday’s post-result briefing with Able Global Berhad (AGB) with the following few key takeaways:

i) A Decent 1HFY24 Performance

ii) Stable Input Costs Ahead

iii) Expects Improvement on Able Dairy Mexico

We remain optimistic about the FY24’s outlook, driven by resilient sales, favourable input costs, and better performance from the Mexico operations. Our FY24-26F earnings estimates remain unchanged. We reiterate our BUY rating with an unchanged TP of RM2.57/share, based on the SOP valuation.

A Decent 1HFY24 Performance

1HFY24 core earnings surged to RM33.9mn from RM16.0mn, mainly driven by the F&B segment and cost efficiency. The F&B segment’s PBT and revenue rose by 121.5% and 15.4% respectively. Demand for evaporated and condensed milk improved, supported by higher orders from both existing and new customers, as well as higher market share in the ASEAN region. Management shared that the utilisation rate for evaporated milk increased to 99% (+19%-pts YoY), while dried milk products rose to 40% (+15%-pts YoY) in 1HFY24. Consequently, the PBT margin improved by 4.6%-pts YoY to 13.6%.

Stable Input Costs Ahead

Dairy prices are on an uptrend, increasing by 1.1% QoQ to an average of USD2,753/tonne (2QFY23: USD2,286/tonne) in 2QFY24. The recent rise in dairy prices was mainly driven by growing global demand and tight inventories in major producing countries. Meanwhile, other raw material costs, such as sugar, tinplate and palm oil, are expected to remain stable in 2HFY24. Overall, we do not foresee any significant impact in the upcoming quarter as the group has procured inventory for the next 4 to 5 months at prices below the current market rates.

We expect core earnings growth of 22.7% YoY to RM61.2mn in FY24. PBT margin is expected to improve by 1.3%-pts YoY to 12.0% in FY24, mainly driven by higher plant utilisation rate and lower key raw material costs compared to the peak in FY23.

Separately, the group plans to bid for the UHT school milk programme in the upcoming month, as the current agreement is set to expire in December 2024. Notably, this programme contributes approximately RM30mn per annum to the F&B segment, accounting for 4.4% of the group’s FY24 sales.

Expects Improvement on Able Dairy Mexico

AGB reported a share of loss of RM2.2mn in 1HFY24, compared to a profit of RM1.1mn in 1HFY23. The losses were primarily due to the depreciation of the Mexican Peso against the USD (-16% YoY). On a positive note, management shared that Mexico’s operations are profitable without the impact of currency translation. Additionally, the current utilisation rate of 34% in 2QFY24 is above the breakeven level of 30%.

Going forward, we expect Mexico’s operations to improve in 2HFY24, backed by restocking activities from existing customers and maiden contributions from new customers. The group aims to boost its topline by supplying products to Walmart in the US. In our forecast, we estimate a higher utilisation rate of 40% (vs. FY23: 20%) for Mexico’s operation.

Impact

We have made no changes to our FY24-26F earnings estimates

Valuation

Maintained Buy on AGB with an unchanged TP of RM2.57/share, based on SOP valuation.

Source: TA Research - 11 Sept 2024