Affin Hwang Investment Bank (Affin Hwang) maintained its HOLD call on Rhone Ma Holdings Bhd as cost pressures are likely to affect its 2024E profitability and growth despite its positive stance on the group’s long-term business outlook.
Post-results for the full year ended 31 December 2023 (FY23), however, it increased its 2024 to 2025E earnings per share (EPS) forecasts by 13% after lifting its revenue and earnings forecasts for the animal health segment as well as introduced its 2026E forecasts.
Subsequently, it raised its 12-month target price (TP) to RM0.74 from RM0.68, based on an updated 12 times target price-earnings ratio (PER) from 12.5 times on 2024E EPS.
The research house said the the animal health solution provider’s earnings were above market and our expectations due to higher-than-expected revenue from the animal health segment.
“Overall, the results account for 114% of both the street’s and our full-year earnings forecasts,” it said.
Affing Hwang said the group’s FY23 core net profit grew by 16% year-on-year (YoY) to RM13.1 million on higher revenue, improved earnings before interest, taxes, depreciation, and amortization (Ebitda) margin arising from lower operating costs, and a lower minority interest.
“It reported a higher 2023 revenue of RM203.1 milion, mainly driven by a higher contribution from food ingredients segment, a 34% increase YoY to RM47.2 million, attributable to stronger sales of grain ingredients, and commodities.
“The higher contribution more than offset a 1% YoY decline in revenue to RM150.2 million from its core animal health segment and a 50% YoY decline in revenue to RM5.7 million from other business segment.
“Tracking the higher revenue, the Ebitda margin improved due to lower operating costs, opportunistic trading profits from food ingredients, and lower minority interest,” it noted.
Meanwhile, despite the flattish revenue recorded in 4Q23, a 0.4% QoQ, it said the group’s core net profit saw a steep increase of 81% QoQ due changes in revenue mix, due to higher revenue share from animal health segment which carries higher margin.
Affin Hwang said it continue to like Rhone Ma’s proactive management team, extensive product portfolio, and expanding manufacturing capacity.
“We expect cost pressures and the subdued domestic economic growth to weigh on its 2024E profit margins and cap its profit growth,” it added.
