MY ER Astino Berhad – Mar 2017

Stock Code 7162.KL
Investment Rating BUY
Current  Price RM 0.72
Target Price RM 0.90
Estimated Return +25.0%
Market Cap RM 199m (as of 15/03/17)

Company Profile:
Astino manufactures and sells metal roof sheets and building related products for industrial, commercial and domestic applications. It also manufactures Polyvinyl Chloride, Agro-House  Multi System for Poultry Industry and Ventilation System. Listed on Bursa Malaysia in 2003.

Investment Considerations:

1) Expect Sluggish trading ahead though the outlook for medium to long-term looks promising.
We are of the opinion that the upcoming GE14 would result in expansionary fiscal policy to boost its already-weak domestic market. However, it might take some times to come into effect. On top of that, positioning in ASEAN will see above average construction activities than those of the advanced economies. Weak Ringgit may deter imported goods while boosting export revenue (at present, not meaningful).

2) Prioritising domestic market for Agro-house products.
Agro-House segment contributes less than 10% of the income generation, and poultry industry in the region has seen a robust double-digit growth. Despite entering into this segment, the management aims to establish presence domestically before going regional. Poultry production saw an increase of 20%+ (between 2010 and 2016e), which might make agro-house products relatively more attractive to ensure quality process.

3) Acceptable cash flow generation though generally constrained by working capital swings and capex.
On average, the fund from operations margin fluctuating between 8% to 10% which is deemed acceptable, but net operating and free cash flow are relatively more volatile. We are projecting the capex to be around 4% to 3.5% of the sales in the near term.

4) Leverage position enhances the ability to survive in the adverse trading environment.
Debt/EBITDA of 1.65x and (EBITDA – Capex)/Interest of c. 3.5x reflect sustainable leverage. Our base case believes the near-term leverage to trend below 2.3x. Net cash position of RM50m and high liquidity (acid test ratio) of 1.6x.

5) Undemanding valuation and pricing in the weakness in upcoming financials into the DCF model.
EV/EBITDA and P/E are trading at 6.48x and 5.55x respectively which we deem as defensive. P/E is also trading at minus 1 Standard Deviation (2-year average). The company has consistently generated satisfactory cash flow, and the discount seems unjustified.

We initiate coverage on Astino with a target price of RM0.90 based on DCF valuation (WACC: 8.4%, 0% terminal growth), which implies an upside potential of 25.0%. The risks to our buy call are discussed on page 9.


Financial Summary FY 13 FY 14 FY 15 FY 16
Price to Earnings 5.25x 6.55x 8.94x 6.26x
Price to Net Tangible Assets 0.69x 0.75x 0.66x 0.65x
Price to FCF 14.44x 5.11x neg. 4.09x
EV / EBITDA 5.57x 5.42x 6.98x 5.12x
Net Profit Margin (in %) 6.18 5.92 4.08 6.42
Free Cash Flow RM’m 11.5 37.2 -12.9 46.5

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