Able Global Berhad - F&B Segment’s Growth Intact

Date: 
2024-03-26
Firm: 
TA
Stock: 
Price Target: 
1.94
Price Call: 
BUY
Last Price: 
2.12
Upside/Downside: 
-0.18 (8.49%)

We met up with the Able Global Berhad (AGB)’s management recently. Below are key some takeaways from the meeting:

Review of FY23

To recap, AGB’s core earnings surged 56.9% YoY to RM50.0mn in tandem with revenue growth of 17.9% YoY to RM648.5mn. The commendable results were spurred by i) Heightened sales demand from the F&B segment, and ii) Lower input cost compared to the peak in 2022, which helped to offset its weaker YoY performance in the Tin Manufacturing segment (Revenue -5.6% YoY and core PBT -27% YoY).

F&B Segment’s Growth Intact

  • Able diary Malaysia

Management guided that the sales volume and dairy production picked up in FY23, mainly due to higher demand from existing and new customers. As such, the utilisation of dairy products has ramped up significantly. The utilisation rate for condensed milk increased by 8%-pts YoY to 72%, evaporated milk surged 25%-pts YoY to 92% and dried milk products hiked 6%-pts YoY to 26%. Overall, the utilisation rate showed an improvement of 9%-pts YoY to 65% coupled with intact demand. According to management, most of the raw material (milk and palm oil) prices have returned to normal levels except for sugar. However, sugar had decreased quite significantly from its peak in 9MFY23. Hence, the PBT margin of the F&B segment in 4QFY23 showed an improvement from 3.1%-pts QoQ to 14.2%.

  • Able diary Mexico

AGB has completed its maiden shipment of evaporated milk products to the United States (US), Central America, and South America to diversify its sales preference. Subsequently, the group is planning to export its condensed milk products to the US by FY24. With the growing demand from its existing and new customers, we expect the utilisation rate to reach approximately 40% for its Mexico plant in FY24 (stood at 25% in 4QFY23 and approximately 20% for FY23).

Additionally, we gathered that the plan to seek approval to export full cream dairy products from Mexico to the US is still in the pipeline. Currently, the group is engaged with the Mexico Health Authority to certify its plant and full cream milk products, which is the prerequisite for the health certification and export to the US. Overall, we maintain our expectation that the group will obtain the export approval by the end of 2HFY24.

Pending Approval to Commence Its Operations in Carey Island

To recap, AGB has acquired a parcel of land totalling 297.5 acres (89.3 acres utilised as manufacturing) to expand manufacturing operations and property development. The projected GDV stood at RM1.5bn after excluding 89.3 acres for manufacturing facilities. Management revealed that the group had submitted necessary documents (land use conversion, development order and factory layouts for Able diaries and tin manufacturing) to the regulatory bodies and is pending approval.

We anticipate the Capex to hover around RM80.0mn to RM100.0mn for its development in Carey Island and will be funded via borrowings. Our back-ofthe-envelope calculation revealed that the net gearing in FY24 will remain healthy in the range of 0.4x (from 0.3x) after considering the bank borrowings.

Impact

We raise our earnings estimates by 7.3% and 6.5% for FY24 and FY25, respectively, after factoring in the higher demand for its F&B segment coupled with lower input costs.

Valuation

Maintained Buy on ABLEGLOB with a revised target price of RM1.94/share (from RM1.75), based on SOP valuation.

Source: TA Research - 26 Mar 2024

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