Analysts continue to favour 3A’s long term potential despite weak 1QFY18

KOTA KINABALU: Analysts have continued to favour Three-A Resources Bhd’s (3A) long term potential in spite of the group’s weak first quarter of financial year 2018 (1QFY18) results.

In a filing on Bursa Malaysia, 3A reported profit net of tax RM6.24 million for the three months ended March 31, 2018, down from RM10.32 million in the corresponding period of the previous year.

The group’s profit before taxation had decreased 51.9 per cent, mainly as a result of lower product margins arising from the surge in raw material prices and higher net foreign currency exchange losses for the current quarter as compared to the preceding year corresponding quarter.

As 3A integrates the higher costs into their operations, the research arm of Public Investment Bank Bhd (PublicInvest Research) adjusted downwards its earnings by 10 per cent to 15 per cent for FY18-20F. PublicInvest Research’s FY18F, FY19F and FY20F net profit for 3A were now at RM32.4 million, RM37.8 million and RM40.8 million respectively.

“Though we remain cautious on near-term challenges from higher raw material costs, we continue to favor 3A’s long term potential,” the research arm said.

According to PublicInvest Research, this was in view of 3A’s consistency in supplying varied types of food and beverage (F&B) ingredients at great quality, gaining confidence from large multinational corporations (MNCs) within the industry and production capacity and office space expansion plans, with an allocation of RM40 million capital expenditure (capex) over the next two years.

It was also due to the group’s clean balance sheet with net cash position and continuous emphasis on research and development (R&D) initiatives resulting in new product developments. All in, PublicInvest Research maintained ‘outperform’ on 3A but with a lower target price of RM1.15 per share, based on 15-fold to a rolled-over FY19F earnings per share (EPS).