Summary

• Communicated with the management. We gathered information from ASIAFLE, where they believe the consumer ware segment will show decent growth, driven by e-commerce expansion and an expanded product range, positioning the company as a top player on online platforms. In the filing division, ASIAFLE maintains its leading position in key markets like the UK, Europe, Australia, New Zealand, and Malaysia, despite the impact of digitalization. In the near term, the company plans to defend its market leadership in filing while aggressively expanding the consumer ware segment. Regarding currency fluctuations, while a stronger MYR affects export earnings, the impact is partially offset by imported materials and overseas operational costs, which are also denominated in foreign currencies. Approximately 55-60% of raw materials used in Malaysia are imported.
• Outlook. We believe ASIAFLE will continue to lead in the filing division, given that digitalization may result in competitor dropouts along the way. The group is wellpositioned with a cash reserve of RM323.1m as of 1QFY25, which it can deploy to support the division. Meanwhile, we anticipate that growth in consumer ware products will continue in line with expanding economic activities and the demand for convenient plastic products in the post-COVID-19 environment. On the stronger MYR, while we expect some offsetting factors, it is still likely to dampen earnings in the near term. Regarding the associate company’s earnings, we foresee a likely negative performance this year, which presents a downside risk to ASIAFLE’s earnings.

Valuation & Recommendation

• Forecast. In light of the stronger ringgit and the associate company’s losses in the recent quarter, we have revised ASIAFLE’s earnings forecast down by 12.4% and 7.0% to RM35.2-38.8m for FY25-26f, from the previous RM40.2-41.7m.
• Maintained HOLD with lower TP of RM1.90. We maintained a HOLD rating on ASIAFLE, with a revised target price of RM1.90 (down from RM2.07). The target price is based on a P/E of 10.0x applied to mid-FY26f EPS of 18.97 sen. We remain positive on the group’s net cash position of RM323.1m of 1QFY25, which accounts for 89.6% of the current market cap of RM360.6m.
• Recommendation risks. Key risks include (i) supply chain disruptions that could lead to higher operating costs, and (ii) foreign exchange risks, as the group’s export proceeds are primarily denominated in GBP and EUR; any depreciation in GBP/MYR or EUR/MYR could pressure margins.

Source: Mplus Research - 1 Nov 2024