Three-A Resources (3A) 1QFY19 revenue remained unchanged YoY at RM102.5m while net profit of RM7.5m improved by 20% YoY due to lower tapioca prices during the current quarter as compared to the corresponding quarter in FY18. The results were within our expectation. We are generally optimistic on 3A’s long term prospects, mainly driven by more significant contributions from the new maltodextrin production line. We continue to favor 3A due to its i) expertise and consistency in supplying varied types of high quality F&B ingredients, establishing strong rapport with large MNCs within the industry, ii) stronger production capacity and expansion plans and iii) continuous emphasis on R&D initiatives resulting in new product developments. Therefore, we keep our earnings unchanged and maintain our Outperform rating with TP of RM1.13, based on 15x FY19F EPS.

• 1QFY19 revenue stayed flat at RM102.5m. Sales in the local market slipped by 4% YoY. Stronger export market sales has helped to offset the impact of weaker sales in Malaysia. Revenue in Singapore and Other Countries grew by 24% and 4.6% YoY respectively. However, when comparing to the immediate preceding quarter, revenue decreased by 14.8% mainly due to the lower sales volume. Going forward, we are forecasting a 5% CAGR for FY19F-21F, driven by diversification in product offerings and better sales contribution from the new maltodextrin production line.

• 1QFY19 PBT jumped by 45.5% YoY mainly attributed to lower raw material price levels compared to last year and higher average products selling prices. Year to-date, global tapioca prices have been trending sideways thus leading to an improvement in operating margins (1QFY19: 18.8%, 4QFY18: 16.2%). Nonetheless we are positive as we expect to see improvement in margins for FY19 in view of falling global tapioca prices, supported by better contribution from the third plant for maltodextrin, which will provide better economies of scale and cost optimization.

Source: PublicInvest Research - 16 May 2019