Quarterly Result (Malaysia) – Astino Berhad (Q3 FY17)

Last Traded Price RM 1.15
Target Price RM 1.26 (from RM 0.90)
Est. Return 9.5%
Rating Neutral (From BUY)
Price to Earnings* 8.32x
Price to Book* 0.95x

 

1) Acceptable Q3 result and very likely to exceed our FY17 estimates.

YTD revenues account 81% of our full year estimates while net income already exceeded by 29%. The company is able to increase its net income by 18% despite having a higher tax payable (effective tax rate increased from 15.4% to 30% YoY). This is attributable to better-operating efficiencies with some financial metrics beating our projection.

  • Net profit margin (Projected: 4.9% vs. YTD Actual: 7.82%)
  • FCF margin (Projected: 5.95% vs. YTD Actual: 7.39%)


2)
Reduce leverage has resulted in higher WACC.

The debt was reduced from RM 74.3mil to RM 47.7mil (a reduction of 36%). With the recent spike in the share price, the capital structure is geared toward equity financing which has resulted in the WACC increased from 8.4% to 9.3%. The leverage has decreased from 1.65x to 0.98x (as measured by Debt/EBITDA). It reduces the tax-deductibility advantage.


3)
Cautiously optimistic on the future outlook.

In our base case scenario, we take on more cautious view that the revenue will experience negative to no growth until FY20. Despite such assumption, the company’s valuation still provides acceptable upside. This is also partly due a change in our terminal growth from 0% to 2% after considering that no growth scenario might be penalising the company’s future prospects severely.


4)
Changing the rating from BUY to NEUTRAL.

After accounting for the change in discount rate and revising the terminal growth, our DCF-derived TP is RM 1.26 which reflects an upside potential of 9.5%. We are changing the rating to Neutral. Our sensitivity analysis suggests that the fair value is range from RM 1.06 and RM 1.36. It is worth noted that the current P/NTA of 0.95x is trading at historical high (based on 5-year data). It may be an indication of fully valued.

 

Please click here for full investment research report.
Click here for previous equity research on Astino Berhad

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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