Kotra Industries’ (Kotra) core net profit tumbled 32.4% yoy to RM10.6m in 4QFY23, due to a high base and weaker operating margins in 4QFY23.
“Its 4QFY23 core net profit fell 39.2% qoq as lower revenue was exacerbated by higher operating expenses,” said CGSCIMB in the recent Company Flash Note.
Kotra declared a 4Q23 DPS of 15.5 sen, bringing its full-year DPS to 25.5 sen and representing a full-year payout of 58% of net profit. 4QFY23 local sales (74% of total sales) grew 4.9% yoy due to higher sales of pharmaceutical products, which were offset by a drop in sales of supplement products.
Local sales were flat qoq in 4QFY23, with Kotra still seeing healthy demand for its ethical drugs, despite local drug shortages having subsided.
“Meanwhile, sales of supplement products in 4QFY23 continued its decline, reflecting the normalisation of consumer spending on OTC supplements post-Covid-19, in our view,” said CGSCIMB.
For exports (26% of total sales), 4QFY23 sales were up an encouraging 53.2% yoy from its efforts to launch new products and deepen its presence in its existing markets, particularly ASEAN and Africa.
However, there was a weakening in 4QFY23 exports sales by 20% qoq, due to decreased sales of supplement products to the overseas markets.
Earnings before interest, tax, depreciation and amoritsation margin contracted 7.5% points YoY to 23.3% in 4QFY23, due to higher advertisement and promotional expenses incurred, as well as change in sales mix.
“We maintain our Hold recommendation on valuations. Even so, we like Kotra’s longterm growth prospects, as well as upside potential to dividends, backed by its net cash position of RM88m as at 30 Jun 2023 and healthy cash flow generation of RM40m per annum,” said CGSCIMB, recommending a Target Price of RM5.74.
Upside risks identified are the higher demand for pharmaceutical products and increase in Covid-19 infections. Downside risks are the higher input costs and higher advertising spend.
