FY20 CNP of RM53.6m (+63% YoY) came in above expectations at 107% and 111% of our and consensus’ respective forecasts. Declared dividend of 4.0 sen (YTD: 12.5 sen) was also a positive surprise. In spite of the expected near-term weakness, we continue to favour the name for its defensive earnings nature, solid balance sheet and decent yield of c.5%. Maintain OUTPERFORM with lower TP of RM2.35 (from RM2.65) as we factored in softer sales amidst the current pandemic outbreak.

Beats expectations. FY20 core net profit (CNP) of RM53.6m (arrived at after stripping of reversal of impairment loss on trade receivables and ESOS expenses) came in above expectations at 107% and 111% of our and consensus’ respective full-year estimates. We believe the positive deviation is largely owing to stronger-than-expected export sales. The declared dividend of 4.0 sen (full-year pay-out: 12.5 sen) is also above our estimate of 10.0 sen, following the stronger earnings.

Decent report card. YoY, FY20 CNP registered a commendable growth of 63%. The stronger earnings are backed by higher core EBIT margin (+4.3ppt), likely lifted by better coffee input costs, more favourable forex translation, as well as greater operational cost savings from the rationalising of its distribution network and more controlled A&P spending. Particularly, revenue also grew, by 14% to RM386.1m, thanks to robust sales from both local (+8%) and export (+21%) markets. For the individual quarter of 4QFY20, revenue and CNP grew by 14% and 22%, respectively, similarly due to the aforementioned reasons.

QoQ, 4QFY20 CNP rose 24% to RM14.6m, huge thanks to the expansion of the core EBIT margin (+5.5ppt). Revenue, on the other hand, was weaker by 11%, mainly dragged by softer export sales to the UAE market.

Near-term outlook threatened by Covid-19. Against the backdrop of the current pandemic outbreak, the group is likely to experience softer quarters ahead. This is premised on our belief that demand may remain subdued under the shadow of Covid-19, following the shift in consumer purchasing patterns amidst social distancing practices and the worsening economic conditions. That being said, the foresaid demerits should be slightly cushioned by the group’s continuous effort to achieve greater operational efficiency, prudent A&P spending focusing on ROI, as well as more favourable forex translation. Furthermore, we also take comfort in the group’s solid balance sheet with a net cash position of c.RM101m, which should allow the group to weather through any nearterm weakness and maintain its current pay-out ratio.

Post-results, we tweaked our FY21E earnings downwards by 11% as we pencilled in weaker sales assumptions while introducing new FY22E earnings forecast.

Maintain OUTPERFORM with a lower TP of RM2.35, following the downwards earnings revision. Our TP is premised on an unchanged 20.0x FY21E PER, which is closely in-line with its 3-year mean. In spite of the expected near-term weakness, we continue to like the group for its defensive earnings nature, sturdy balance sheet and decent yield of c.5%, which could offer some degree of defence against market uncertainty.

Risks to our call include: (i) lower-than-expected sales, (ii) higherthan-expected commodity and marketing costs, and (iii) lower-thanexpected dividends.

Source: Kenanga Research - 29 May 2020