KOTRA’s 9MFY24 results was disappointing says Kenanga, the core net profit declined 39% on reduced sales and the resulting deterioration of operating scale, coupled with a higher tax. However, the house said it remains upbeat on KOTRA given recovering consumer spending.
Kenanga cuts its FY24-25F net profit forecasts by 13% and 9%, respectively, reduce TP by 9% to RM5.35 (from RM5.90) but reiterates its OUTPERFORM call.
Notably, the 9MFY24 net profit missed expectations at only 64% and 57% full year forecast and the full-year consensus estimate, respectively. The variance against forecast came largely from a higher-than-expected effective tax rate of 19% as compared to assumption of 9%. No dividend was declared which is within expectation it said.
YoY, its 9MFY24 revenue fell 11%, Kenanga said it believes, as consumers held back purchases on weak spending sentiment. Its EBITDA margin fell by a steeper 13% on diminished operating scale, both at production and marketing, on the reduced sales volumes. Its 9MFY24 net profit declined by 39% due to higher effective tax rate.
QoQ, its 3QFY24 turnover fell 3% due to decreased export sales which more than offset higher local market volumes. However, its EBITDA and PBT improved 21% and 18%, respectively, the house believes due to an improved product mix with more higher-margin products. Its net profit fell 41% due to a higher effective tax rate of 51% (due to depletion from utilisation of deferred tax assets) compared to 2% in 2QFY24.
Kenanga expects consumer sentiment to gradually improve during the year as and when more clarity emerges over subsidy rationalisation, especially in relation to RON95. Once put in place, consumers will gradually “come to terms” with it and resume spending in accordance with what they can afford. A 13% hike in the salary of civil servants from Dec 2024, and a gradual pick-up in the local economy and job market in-line with the recovery in the global economy will also help.
The house continues to like KOTRA for: (i) the bright prospects of the over-the-counter (OTC) drug market, (ii) its integrated
business model encompassing the entire spectrum of the pharmaceutical value chain from R&D, product conceptualisation to
manufacturing and sales, and (iii) the superior margins of its original brand manufacturing (OBM) business model (vs. low-margin contract manufacturing) with established household brands such as Appeton.
