Quarterly Result (Malaysia) – Astino Berhad (Q4 FY17)

Last Traded Price RM 1.13
Target Price RM 1.24 (from RM 1.26)
Est. Return 10.1%
Rating Neutral (Maintain)
Price to Earnings* 9.0x
Price to Book* 0.9x

 1) Disappointing albeit acceptable Q4 FY17 result.

Our financial projection tends to be the lower end of the scale hence we are not surprised that its unaudited full year result exceeds our forecast. However, QoQ and YoY comparison disappoint. The top line was acceptable, but operating margins were depressing. Profit generation was impacted by one-off inventory write-off, and Q4 FY17’s net income declined 11% on a recurring basis against preceding quarter and previous year’s quarter. Overall, we were pleased with its FFO generation (we consider it as the most organic cash flow pre capex).

2) No material change in leverage and WACC.

In our previous quarterly review, we revised our WACC calculation after factoring in the deleveraging. No material change in current quarter though slightly lower cash holding.

3) Cautiously optimistic on the future outlook but no change to DCF assumptions.

To give you some idea, we expect Astino to generate a net profit of RM 21.9mil in FY18 against RM 34.4mil (FY17, unaudited). We need to see the audited report for more detail analysis as the quarterly report has limited information.

4) Vacant lands can be better utilized as it is non-productive to the company’s profit generation.

Vacant lands are double edge sword as it does not contribute to the profit generation. Based on FY16’s annual report, there were seven vacant lands predominantly in Penang and one in Selangor. With a combined value of RM64.5mil and most have not been revalued since 2011 while some are purchased in 2015 and 2014. Most of its lands and building are freehold which has not been revalued. Therefore, its asset-based value could be a lot higher, but it has not been taken into consideration for our valuation.

5) Maintain Neutral with a revised TP of RM 1.24.

We revised our TP as we roll forward to the next financial year. TP slightly decrease from RM 1.26 to RM 1.24 (WACC: 9.3% and Terminal Growth: 2%). Our sensitivity analysis suggests RM 1.34 for best case and RM 1.04 for worst case scenario (downside risk of 7.7%). Based on the closing price of RM 1.13, we believe the upside potential is circa 10%, maintain our neutral rating on the stock. The risks to our valuation are a material adverse change in financials and sudden elevation in Capex that will result in weak free cash flow.

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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