Summary

• Below expectation. In 1QFY25, Asia File Corporation Bhd (ASIAFLE) reported core earnings of RM10.3m (-33.5% QoQ, -35.8% YoY). The results fell short of our expectations, accounting for only 19.6% (but in-line with consensus estimates at 25%). The key deviation was due to higher-than-expected operating expenses. No dividend was announced for the quarter.

• QoQ. Revenue increased by 7.1% to RM77.2m, primarily driven by the filing division, which saw a 12% increase. However, the Consumer and Food Ware division declined by -12%. Operating profit decreased by -26% in the filing division and -46% in the Consumer Ware division. Core PATMI dropped significantly by -33.5%, from RM15.4m, mainly due to unfavorable foreign exchange impacts.

• YoY. Core PATMI declined by 35.8% from RM16.0m in 1QFY24, mainly due to (i) steeper foreign exchange losses and (ii) higher operating expenses following the Red Sea incident, which contributed to increased freight costs.

• Outlook. The Group anticipates challenges in the consumer industry due to sluggish global growth but remains focused on improving productivity and efficiency. It is actively exploring new product categories to boost revenue and has implemented strategies to counter declining demand in its filing division. Despite the challenges, the group is confident in maintaining positive performance for the financial year ending 31 March 2025.

Valuation & Recommendation

• Forecast. Given that the results were below expectations, we have revised our earnings forecast down by 23.4%-23.7% to RM40.2-41.7m for FY25-26f, from the previous RM52.4-54.6m.

• Downgrade to HOLD with lower TP of RM2.07. We downgrade ASIAFLE to a HOLD (from Buy) recommendation, with a revised target price of RM2.07 (from RM2.70). The target price is based on a P/E of 10.0x applied to FY25f EPS of 20.7 sen. However, we remain positive on the group’s net cash position of RM323.1m (75.4% of the current market cap of RM389.6m) as of 1QFY25.

• Recommendation risks. Potential risks include (i) supply chain disruptions that could lead to higher operating costs, and (ii) foreign exchange risks, as the group's export proceeds are mainly denominated in GBP and EUR, any depreciation of GBP/MYR or EUR/MYR could pressure margins.

Source: Mplus Research - 30 Aug 2024