Three-A Resources Bhd (Nov 17, RM1.17)
Maintain buy at RM1.18 with revised fair value of RM1.83 (from RM2.13): Three-A Resources (3A) posted a higher net profit of RM14 million (year-on-year [y-o-y]: 4%) for 9MFY11. Earnings for the nine months came in at the low end of our full-year forecast and consensus estimate at 65%, with the variance mainly due to softer than expected top line growth. We have trimmed our FY11F to FY13F earnings by 10% to 12%. Despite our revisions, our earnings model indicates a strong three-year compounded annual growth rate of 35%. We are now projecting FY11F net profit of RM18 million to grow 63% to RM30 million for FY12F, and a further 43% to RM42 million the year after.
On a sequential basis, 3Q performance was impacted by lower revenue which contracted 11% due to softer demand, and partially offset by a margin expansion of 2.9 percentage points. While net profit declined 34% to RM3 million, we remain encouraged by the group’s continued margin recovery on the back of cheaper raw materials. We expect margin revival to gain further traction as cheaper costs filter through in the quarters ahead.
As it is, key input cost of tapioca starch (Thai) is trading at US$460 (RM1,454) per tonne, 19% off its year-to-date peak in June. Tapioca starch constitutes 40% to 50% of total raw materials.
We remain positive about 3A’s prospects. Its capacity driven earnings growth is well underpinned by stable demand and margin recovery.
More importantly, 3A’s long-term growth and transformational earnings are on track, with its maiden China joint venture plant with Wilmar International on schedule for operational commencement by end-FY11F.
We maintain “buy” on 3A with a revised fair value of RM1.83 per share (previously RM2.13), based on a fair price-earnings ratio (PER) of 24 times FY12F earnings. Valuation is cheap at the present level, with forward PER of 15 times at a steep discount to its three-year historical average of 26 times. — AmResearch, Nov 17
This article appeared in The Edge Financial Daily, November 18, 2011.
Maintain buy at RM1.18 with revised fair value of RM1.83 (from RM2.13): Three-A Resources (3A) posted a higher net profit of RM14 million (year-on-year [y-o-y]: 4%) for 9MFY11. Earnings for the nine months came in at the low end of our full-year forecast and consensus estimate at 65%, with the variance mainly due to softer than expected top line growth. We have trimmed our FY11F to FY13F earnings by 10% to 12%. Despite our revisions, our earnings model indicates a strong three-year compounded annual growth rate of 35%. We are now projecting FY11F net profit of RM18 million to grow 63% to RM30 million for FY12F, and a further 43% to RM42 million the year after.
On a sequential basis, 3Q performance was impacted by lower revenue which contracted 11% due to softer demand, and partially offset by a margin expansion of 2.9 percentage points. While net profit declined 34% to RM3 million, we remain encouraged by the group’s continued margin recovery on the back of cheaper raw materials. We expect margin revival to gain further traction as cheaper costs filter through in the quarters ahead.
As it is, key input cost of tapioca starch (Thai) is trading at US$460 (RM1,454) per tonne, 19% off its year-to-date peak in June. Tapioca starch constitutes 40% to 50% of total raw materials.
We remain positive about 3A’s prospects. Its capacity driven earnings growth is well underpinned by stable demand and margin recovery.
More importantly, 3A’s long-term growth and transformational earnings are on track, with its maiden China joint venture plant with Wilmar International on schedule for operational commencement by end-FY11F.
We maintain “buy” on 3A with a revised fair value of RM1.83 per share (previously RM2.13), based on a fair price-earnings ratio (PER) of 24 times FY12F earnings. Valuation is cheap at the present level, with forward PER of 15 times at a steep discount to its three-year historical average of 26 times. — AmResearch, Nov 17
This article appeared in The Edge Financial Daily, November 18, 2011.
