Three-A up 8% on JV with Wilmar

KUALA LUMPUR (April 24) : THREE-A RESOURCES BHD [] shares climbed as much 8% on updates that the firm’s collaboration with Singapore-listed Wilmar International Ltd to establish a food ingredient factory in China is taking shape.

Three-A shares rose nine sen to RM1.29 before trading lower at RM1.27 at 11.30am with some 1.5 million shares done.

Datuk Mohd Nor Abdul Wahid who is Three-A’s chairman recently said the food ingredient factory in China is expected to begin production this month. He said the factory will produce ingredients like hydrolysed vegetable protein, a food flavour enhancer.

Malaysia’s PPB GROUP BHD [] owns 18.32% of Wilmar.



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CIMB Research has technical sell on 3A at RM1.30

KUALA LUMPUR (Feb 17): CIMB Equities Research has a technical sell on Three-A Resources at RM1.30 at which it trading at a price-to-book value of 2.6 times.

It said on Friday that Three-A violated the wedge support few days. On Thursday, the stock also breached the 200-day SMA.

“If the candles continue to remain below this moving average, we anticipate selling pressure to pick up strongly. The next downleg is likely to push prices lower towards RM1.22 and RM1.14,” it said.

CIMB Research said the indicators are showing signs of exhaustion. MACD signal line is poised for a negative crossover while RSI has hooked downward. The 30-day and 50-day SMAs will also be magnet for prices.

“Unload on strength looks like a good option here, especially near the RM1.32-RM1.35 resistances. Unless prices swing back above the RM1.38 level, we would rather stick with the bear’s camp for now,” it said.



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Margin expansion at Three-A Resources to accelerate

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.



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