We came away from ABLEGLOB’s post results analyst briefing feeling neutral with the following key takeaways: i) Dairy segment’s margins are expected to sustain amid resilient consumption ii) Demand for filled milk products is escalating iii) Export approval for full cream dairy products still in the pipeline. No change to our earnings forecast. Maintain Buy with an unchanged target price of RM1.55/share.

Dairy segment’s margins are expected to sustain amid resilient consumption.

Following the strong core earnings growth of 15.1% YoY recorded in 3QFY23, the momentum is expected to be sustainable riding on normalised commodity and freight costs. Recap, the key input costs have been stabilised over the last three quarters, despite the sugar cost remains elevated due to supply shortage as a result of production setback in India and port congestion in Brazil. That said, we expect the margins to stabilise over the next quarter against the backdrop of reducing cost trend and ABLEGLOB’s diverse pool of suppliers.

Demand for Filled Milk Products Is Escalating.

Recap, ABLEGLOB has completed its first maiden exports for filled milk products in July 2023 to USA. We gather that the inflationary pressure has dampened the consumer’s spending power following the aggressive decision made by the Federal Open Market Committee (FOMC) in July 2023 to raise the interest rate to 5.25%-5.50% in July 2023. Hence, the targeted customer groups are more inclined to seek for affordable options and hence benefitted the ABLEGLOB, mainly attributed to its lower price point product offerings, which were evidently proven by its escalating repeat orders from key clients and newly secured orders specifically for the filled milk products.

Export Approval for Full Cream Dairy Products Still in the Pipeline.

The group has been seeking an export approval on full cream dairy products from Mexican authority since its first announcement in March CY23. In the absence of clarity of timeline for the approval, the company has been actively engaging with local consultants in Mexico amid the submission of necessary documents to the Mexico’s authority after the initial query. We understand that there are concerns over the raw material source, which has been blocking the application. Nonetheless, the company is cautiously optimistic of the progress underpinned by its efforts of expediting the approval process to meet the pre-requisite thresholds. That said, we believe the license is likely to be obtained by early of 2HCY24, if not in end-2HCY24.

Impact

No Change to Our Earnings Forecasts.

Valuation

We maintained Buy on ABLEGLOB with an unchanged target price of RM1.55/share based on SOP valuation method.

Source: TA Research - 6 Dec 2023