KEY INVESTMENT HIGHLIGHTS

• Below expectations
• Revenue softened on weaker demand
• Subdued profitability
• Revising earnings estimate down
• Downgrade to SELL with lower TP of RM1.44

Below expectations. Asia File's ("AF") chalked in 2QFY25 revenue of RM68.5m (-11.2%qoq; -13.3%yoy) and core PATANCI of RM4.5m (- 56.3%qoq, +25.5%yoy) which brought 1HFY25 core PATANCI to RM14.8m (-13.9%yoy). This came in below our estimates, accounting for 36% of full-year estimates. The underperformance was primarily due to higher-than-expected input costs and increased associate losses. No dividend was declared for the quarter.

Revenue softened on weaker demand. For 1HFY25, revenue declined slightly by -5.8%yoy to RM145.7m. This was primarily due to lower contributions from Filing Products, which contracted by -8.9%yoy to RM121.7m, while Consumer & Foodware Products showed modest growth of +13.3%yoy to RM23.9m. On a sequential basis, AF's 2QFY25 revenue fell -11.2%qoq to RM68.5m, reflecting subdued demand across key segments amid a challenging macroeconomic environment.

Subdued profitability. Excluding a one-off forex loss of RM16.2m, 2QFY25 core PATANCI stood at RM4.5m, a sharp decline of 58.5%yoy.

For 1HFY25, core PATANCI margins contracted to 10.2% (from 11.1% in 1HFY24), mainly due to elevated input and freight costs. Additionally, the group's share of associate losses widened to RM5.8m compared to RM3.3m in 1HFY24, further eroding profitability.

Revising earnings estimate down. In light of the weak results, we have revised our FY25-27F core earnings estimates downward by -28%, -30%, and -32%, respectively, to account for softer revenue from Filing Products and persistently high input costs.

Downgrade to SELL with lower TP of RM1.44. Post earnings revision, we lower our TP to RM1.44 (from 2.05) based on revised FY26F core EPS of 15.3 sen and an unchanged PER of 9.4x, which aligns with AF's 3 years historical PER of 9.4x. Consequently, we downgraded our call to SELL, reflecting limited upside potential and heightened earnings risks.

Outlook. Looking ahead, we remain cautious about the near-term demand outlook for AF's Filing Products and Consumer & Foodware Products amid the ongoing global economic slowdown. However, the group's commitment to launching new products and expanding its online platforms could provide some relief.

Source: MIDF Research - 29 Nov 2024