THREE-A RESOURCES BHD

Target Price: RM1.17

PUBLICINVEST Research is initiating coverage on Three-A Resources (3A), with a “neutral” call and a 12-month target price of RM1.17 based on 15 times the estimated earnings for the company for the financial year (FY) ending Dec 31, 2018.

The brokerage says it deems the multiple justified, considering the limited geographic exposure given 3A’s high concentration on domestic market and lack of re-rating catalyst in near future.

PublicInvest Research expects 3A’s dividend per share for FY2017 to be maintained at current level of 1.8 sen, equivalent to a 25% payout ratio, translating to a 1.7% dividend yield.

PublicInvest Research notes that 3A is the holding company of San Soon Seng Food Industries (M) Sdn Bhd (SSSFI), which is involved in the manufacturing and sale of food and beverage (F&B) ingredients to the F&B and pharmaceutical industries.

It notes that in Malaysia, SSSFI is believed to be the only player that could supply a full range of F&B ingredients to large multinational companies.

The company has recently acquired land near its existing processing facility with the plan to expand its production capacity in order to meet increasing demand for its products.

PublicInvest Research is conservatively forecasting three-year earnings compounded annual growth rate (CAGR) of 2.7% for 3A, on the back of new product developments, new product packaging facilities to cater to customer demands, overall diversity in product offerings and continuous investment in capacity expansion plans.

“We note that the F&B industry has been growing steadily each year in tandem with the growth in population, increased urbanisation and advancement in technology of food processing and other developments that will continuously support industry growth,” PublicInvest Research says.

“We project a three-year revenue CAGR of 5.6%, supported by economic growth, which should translate into solid consumer spending on F&B products,” it adds.