Summary

• Below expectations. In 2QFY25, ASIAFLE recorded core LATMI of -RM10.6m, compared to a core PATMI of RM6.9m in 2QFY24 and RM10.3m 1QFY25. This brings the 1HFY25 core LATMI to –RM0.3m. The core PATMI came in significantly below our expectations of as our forecast stood at RM35.2m, while consensus forecast was at RM41.2m. Key deviations include (i) softer-than-expected revenue and (ii) higher-than-expected forex losses.

• Dividend. No dividend was declared for the quarter.

• QoQ. Revenue declined by -11.2% to RM68.5m, with the filing division contracting - 12.9% and the consumer ware division decreasing by -2.4%. This led to an operating loss of -RM6.8m, compared to an operating profit of RM11.0m in 1QFY25. Also, the share of loss from associates widened to -RM4.8m (from - RM1.1m in 1QFY25). Forex losses also increased sharply to -RM16.2m, compared to -RM0.3m in the previous quarter.

• YoY. Revenue fell by -13.3%, primarily due to softer demand in the filing division (- 16.7%). This decline was partially offset by an 8.0% increase in the consumer ware division, driven by stronger online sales. However, ASIAFLE still recorded a core LATMI of -RM10.6m versus a core PATMI of RM6.9m in 2QFY24, impacted by significant forex losses and weaker performance from its associate.

• YTD. Despite a 13.3% growth in the consumer ware segment (RM23.9m vs. RM21.1m in 1HFY24), group revenue declined by -5.8% to RM145.7m due to weaker demand in the filing segment (RM121.7m vs. RM133.6m in 1HFY24). The 1HFY25 core LATMI stood at -RM0.3m, compared to a core PATMI of RM22.9m in 1HFY24.

• Outlook. ASIAFLE’s revenue declined by nearly 6% due to ongoing challenges in the filing division, which continues to face pressure from corporate digitalization efforts that accelerated during the COVID-19 pandemic. However, growth in the consumer ware division remains promising, supported by online sales through e- commerce platforms. Losses from the associate remain a drag on overall performance. Notably, this marks ASIAFLE's first quarterly loss in over 20 years, largely due to currency risk. However, recent trends in the ringgit could provide some relief, where the ringgit weakened against the USD by ~7.5% and against the EUR by ~2.6% since the start of the quarter, this depreciation may potentially translate into forex gains in the upcoming quarter.

Valuation & Recommendation

• Downward revision in forecast. Given the weaker-than-expected earnings, we revise our core PATMI estimates downward by -50% and -25.6% to RM17.7m-RM18.8m for FY25f and FY26f, respectively, to account for higher forex losses and widening losses from associates.

• Downgrade to SELL with revised TP of RM1.48. We downgrade ASIAFLE from Hold to Sell with a revised target price of RM1.48. This TP is derived by applying a P/E of 10.0x to the FY25f EPS of 14.78 sen. However, the group has a net cash position of RM252.8m (equivalent to 74.2% of the current market cap of RM340.8m) as of 1HFY25. There remains a possibility of shareholder rewards ahead of the anticipated dividend tax implementation in 2025.

• Key risks to our recommendation include: (i) supply chain disruptions that could increase operating costs, and (ii) forex risks, given that export proceeds are primarily in GBP and EUR, while imports are largely denominated in USD. Depreciation of GBP/MYR or EUR/MYR could further pressure margins.

Source: Mplus Research - 29 Nov 2024