4QFY21 saw negative growth which saw FY21 top-line ending moderately higher (+4) on account of its strong performance in the first three quarters and higher export sales. Strong demand from its food products and maiden contribution from an acquisition - Sri Nona Group - enhanced earnings. Its strong net cash position places the Group in a comfortable position to absorb further uptick in costs and further capex. At current price, the stock is undervalued and bottoming out. Reiterate OUTPERFORM with a revised TP of RM32.45.

Broadly within expectations. FY21 PATAMI of RM395m accounts for 94%/96% of our/consensus estimate. We deemed this to be broadly within expectations given the intensive restrictions in the 4Q which crimped local sales. Nevertheless, both Malaysia and Thailand saw exports growing at double-digit YoY. A final DPS of 33.0 sen was declared firming full-year DPS to 60.0 sen (in line) implying a pay-out of 57% (FY20: 54%).

YoY, FY21 top-line saw a 4% uptick as both Malaysia and Thai operations posted 4% and 3% uptick, respectively. F&B Malaysia’s exports saw high double-digit expansion while domestic’s sales saw low single-digit (a guesstimate) crimped by lockdown in 4QFY21. We believe export from the Thai operations also saw a double-digit growth (positive sales into the Indochina market) but domestic sales were probably in the low single-digit. F&B Malaysia’s growth was underpinned by its food business with maiden contribution from its newly acquired Sri Nona Group. Group GP margin saw a 1ppt dip to 29% attributed to elevated commodity costs and uptick in supply chain costs. Opex saw a slight dip (-2%) on prudent management from both Malaysia and Thailand negated by one-off restructuring costs (RM19m) and royalty expenses (Thailand).

QoQ, top-line saw double-digit decline (-15%) with both Malaysia and Thailand dipping at 15% and 16%, respectively. Both operations were dragged by respective domestic sales. . EBITDA margins saw a 4ppt dip to 11% dragged by the same combination of elevated input costs, higher Covid-19 related expenses, royalty expenses and restructuring costs. ETR was lower at 5% due to a combination of tax-exempt income and deferred tax. PATAMI ended at RM59m (-39%) due to the combination of declining sales and higher input costs.

Poised for growth. Premised on the ease of restrictions coupled with year-end activities and pent-up demand, we see robust and sustained earnings ahead. Its investment in the Sri Nona Group has proven its worth and will enhance demand in the coming festive seasons; also providing the platform to venture into the halal food segments and product offerings and expansion of its halal exports to the MENA region and ASEAN. Despite lower consumer activity, the Group maintained its market leadership in all key categories for the year and launched 13 new products. It has seen an increased in the number of products endorsed with the Healthier Choice logo in its portfolio to 69. Commodities prices are expected to remain elevated in the immediate term and coupled with supply chain costs, we expect GP to remain at this level (c.29%) in the immediate term. We are positive on its strong net cash position (RM555m) implying further capex ahead will be funded through internally generated earnings, while further uptick in input prices and excise duties would be absorbed comfortably.

Post results, our FY22E CNP is revised down by 7% (on account of still elevated input costs and the Prosperity Tax) to RM396m and we introduce our FY23E CNP of RM467m.

Moving forward, TP is reduced to RM32.45 (RM33.15 previously) on a FY22E PER (5-year mean) of 30x – justified given the sustained demand from its food business and growing exports mitigated by the one-off Prosperity Tax. Trading at a 5-year low, we feel the price bottoming out with the reopening of the economy. Reiterate OUTPERFORM

Risks to our call include: (i) pandemic proving resilient against the vaccinations, (ii) volatile commodity prices, and (iii) unfavourable Ringgit.

Source: Kenanga Research - 5 Nov 2021