MY ER Asia File Corporation Berhad – Apr 2017

Stock Code 7129.KL
Investment Rating NEUTRAL
Current  Price RM 3.34
Target Price RM 3.70
Estimated Return +10.8%
Market Cap RM 658.6m (as of 15/04/17)

Company Profile:

One of the leading stationery products manufacturers with high exposure to the European market. Offers its products under the brand names such as ABBA, Premier and Profile.

Investment Considerations:

1) Frexit is a potential risk
On-going discussion of Frexit and current situation post-Brexit will weaken Asia File’s attractiveness given its close to 70% exposure to European markets. Frexit will have a much more detrimental effect as it is described as ‘could be worse than Lehman Brothers’. However, many research institutions such as Raiffeisen, CIBC and JP Morgan rates the probability as very low. And stationery products demand is expect to be supported by the improvement in literacy levels in most countries.

2) Greater risk of a shift in consumer preference due to technological advancements.
Recently, Amanah Saham Bumiputera has been disposing of shares. It is obviously an adverse signal to the market. However, the amount is relatively small. Based on our calculation, the disposed amount to date is only 0.4% of their total holdings.

3) Losing support from a significant shareholder
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) Current valuation does not consider for new products though it is likely to have a positive impact on the business
Management publicly stated their intention to diversify into new products (such as metal-based and plastic-based). We did not project it into our valuation given the uncertainty surrounding the estimation of profit margins and demand.

5) Well-positioned to weather the storm with its high liquidity and comfortable leverage
On the positive aspect, Asia File’s liquidity is strong as reflected by a quick ratio of 3.4x, underpinned by net cash position of RM91.8mil. Sustainable capital structure with Debt/EBITDA comfortable at 0.49x and high debt-servicing capability.

6) Initiate with a Neutral rating
We have valued the company using DCF (WACC: 9.8%, TG: 3%) and initiate the stock with a target price of RM 3.70 reflecting an upside potential of 10.8%. Its current P/E is trading at over 50% discount to the Bursa Malaysia Small Cap Index average, though we do not see any re-rating in short to medium terms. Key risks are material deterioration in trading environment and unexpected surged in capital expenditure.


Financial Summary FY 14 FY 15 FY 16 LTM
Price to Earnings 13.2x 17.3x 8.7x 11.6x
Price to Net Tangible Assets 2.6x 2.6x 1.7x 1.6x
Price to FCF 16.2x 19.1x 9.6x n.a
EV / EBITDA 10.8x 11.6x 7.7x 10.2x
Net Profit Margin (in %) 16.5 12.9 19.6 15.9
Free Cash Flow RM’m 49.5 45.6 69.5 n.a

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The opinions and views presented in this website and equity research reports are based on facts (which Yield Mountain believes to be reliable and correct) and subjective judgements. It is only for information purpose and does not consider the unique circumstances of the readers. It is not intended as an offer to buy or sell the securities discussed. All the information is based upon publicly available information. Whilst every effort is made to ensure the opinions and views are accurate, we are not auditors and do not independently verified every source used. Past performance is not necessarily an indicative of future performance and the contributors at Yield Mountain will not accept for any losses arising from information contained in this report. The contributors may form forward-looking views (projections and estimations) of the companies which may not necessarily be true. Market conditions and unforeseeable events may lead to materially different outcomes. Yield Mountain strongly recommends the readers to seek independent advice from their brokers to understand the investment risks arising from taking investment actions based on the Yield Mountain’s equity research.

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