Quarterly Result (Malaysia) – Astino Berhad (Q2 FY17)

Last Traded Price RM 0.85
Target Price RM 0.90
Est. Return 5.9%
Rating Neutral (Downgrade from BUY)
Price to Earnings* 6.64x
Price to Cash Flow* 3.33x
Price to Book* 0.72

* As of 29/03/17 (Source: Morningstar)

Astino announced their 2nd quarter financial result last Friday, and we were not surprised with its exceptional result as our projections tend to be conservative (in our opinion). YTD Revenue increased 5% YoY primarily driven by the steady growth in domestic market and higher foreign sales though no breakdown on the products. YTD Profit generation was greater on the back of improvements in operating (from 7.8% to 9.9%) and net profit margin (5.1% to 7.1%). YTD Net profit increased by 47% from RM12m to RM17.7m

We have projected that for FY17, the revenue and net profit to be RM463.7m and RM22.7m respectively. 2 quarters’ revenue accounts 53% of our full year estimation (more or less in line with expectation) while net profit accounts 78% which has a higher chance of beating the estimate. Liquidity remains robust with quick ratio increased from 1.27x to 1.41x. Leverage slightly reduced but should not affect our cash flow valuation (since it is at enterprise value which disregard its capital structure) but it does affect equity value. However, we consider the amount to be immaterial.

On the negative aspects, we initially projected the changes in working capital would contribute positively which was off the estimate since current quarter, we have seen that working capital consumed RM21.5m of the cash flow (vs. RM4.6m one year ago). Though it was partly offset by the lower Capex. Overall, free cash flow was weaker than our estimation (actual: RM 5.8m vs. projected: RM13.8m). We believe that for the full year, the cash flow generation could be catch up by stronger overseas sales in upcoming quarters.

After 3 days rally, the share price has increased by almost 20% in the space of fewer than 2 weeks (since our initiation). We believe the stock price might stay sideway for a while. We maintain our DCF-derived target price of RM0.90 which implies an upside potential of 5.9% hence we downgrade the rating from BUY to Neutral. Although we currently have a neutral rating, we continue to like Astino for its attractive valuation underpinned by its undemanding valuation while the stock itself is supported by sound fundamental. It is worth noted that we have applied 10% discount to our fair value calculation. Without the discount, the fair value should be around RM1.00 (last closing price: RM0.85).

Disclaimer: The views above are opinions based on facts and subjective judgements. Yield Mountain (including the contributors) does not take any responsibility (be in monetary or non-monetary) for any actions rely on the information discussed.

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