Sector : Consumer Product & Service
Sub Sector : Food and Beverages
Focus : Sauces and Vinegar
Company
Profile:
Three A Resources Berhad, 3A is focused in
manufacturing and trading of food and beverage ingredient. The company’s
product portfolio include Liquid Caramel, Caramel Colour, Natural Fermented
Vinegar, Distilled Vinegar. Rice Vineger, Glucose Syrup, High Maltose Syrup,
Soya Protein Sauce, Hydrolyzed Vegetable Protein (HVP) Power, Caramel Powder,
Soya Sauce Powder and Maltodextrin.
3A mainly focus in Malaysia (49 %), Singapore (11 %)
and Other Countries (40 %). The Group assets and liabilities are mainly located
in Malaysia.
Revenue:
Below is the revenue
and operating margin of 3A
|
5 Years Annualise Growth of Revenue
|
6.97 %
|
|
10 Years Annualise Growth of Revenue
|
9.34 %
|
3A revenue had average growth rate of 6.97 % from
2015 – 2019 which slow down base on 9.34 % growth rate of 9.34 % from 2010 –
2019. In year 2019 3A revenue had slight decrease compare to 2018 revenue, a
drop of revenue of RM 1,911,000 which is less than 0 % of the 2018 revenue.
Despite lower revenue, 3A had higher operating
margin which is 9.44 % compared to 8.08 % in 2018. 3A able to achieve a better
operating margin due to relatively stable raw material costs couple with
effective mix and product pricing strategies.
Nett
Profit
Bar Chart below shows 3A nett profit from 2010 –
2019.
|
5 Years Annualise Growth of Nett
Profit
|
10.06 %
|
|
10 Years Annualise Growth of Nett
Profit
|
6.36 %
|
The 30 % drop of Nett Profit in 2018 compared to
2017 was mainly due to increase of raw material price. The raw material in the
inventories had increase from Rm 22,907,000 to RM 46,281,000, 202% increase.
However in 2019 the price is drop back to RM 27,481,000, 60 % decrease.
Until 30th June 2020, 3A Nett Profit had
increase by 12.95 % compared to same period of 2019.
|
Pro:
|
- Raw material price had drop by 60 %
compared to 2019.
- Nett Profit for 2020 is expected to
growth at 12.95 %
|
Assets
and Liabilities
3A asset grows over the period of 2010 to 2019.
Besides that it liabilities also reduced over the period.
Trade
Receivables
3A had low trade receivable past due for the past 10
year. Highest percentage of trade receivable past due compared to total trade
receivable is in 2010 which is around 10%. 3A managed to keep the trade
receivable past due low despite increase of trade receivable over the year.
|
Pro:
|
|
· - Low
Trade receivable past due
|
Financial
Ratio
There would be few financial ratios to be look at
here:
- Interest
Coverage Ratio (Green Bar Chart)
- Cash
Ratio (Blue Line Chart)
- Current
Ratio (Red Line Chart)
1) Interest
Coverage Ratio
Interest coverage ratio measure how
capable the company pay off the existing debt. With an interest coverage ratio
above one mean the earnings before interest & tax (EBIT) is able to pay of
the full amount of the financial cost of the year.
3A manage to keep the interest
coverage ratio above one for the past 10 years. In 2019 3A interest coverage
ratio is at 48.
2) Cash
Ratio
As cash is the most liquid assets
of the company, cash ratio is use to determine company ability to pay off short
term liabilities using cash. Cash ratio above one indicates that company able
to settle all current liabilities using available cash.
3A had low cash ratio which only
manage to get above one for 2 years in the last 10 years which is 2017 and
2019.
3) Current
Ratio
Current ratio measures ability of
the company to pay off short term obligation (current liabilities). Current
ratio above one means the company able to pay off the current liabilities with
current asset.
Despite low cash ratio, 3A having
high current ratio which means 3A consist higher current asset than current
liability. In 2019 55 % of the current asset are trade receivable and 3A had
low trade receivable past due (0.47 % in 2019) hence 3A had no problem to pay
off it current liability.
|
Pro:
|
|
· - 3A
having high interest coverage ratio (48) and high current ratio (6.67) for
the year 2019
|
Turnover in Days
Let
look into three types of turn over as follow:
- Inventory
Turnover (Blue Line)
- Trade
Receivables Turnover (Red Line)
- Trade
Payable Turnover (Green Line)
1) Days
Sales of Inventory
10
Years Days Sales of Inventory Median (days) – 75.20
On average 3A Days Sales of
Inventory is around the median 75.2 days except in year 2014 (421.15) and 2015
(377.21)
2) Trade
Receivable Turnover (Days)
10
Years Trade Receivable Turnover (Days) – 82.50
On average 3A trade receivable
turnover is 82.50 days.
3) Trade
Payable Turnover (Days)
10
Years Trade Payable Turnover (Days) – 12.39
3A had low trade payable turnover which means it pay
it debtor 6.65 times faster than collect back from creditors. Except in 2015 3A
had negative trade payable turnover which mean 3A was buying less stock because
it has high stock pile in 2014 and 2015.
|
Cons:
|
|
· 3A have
to pay bad it debtor 6.65 times faster than collect back from creditor
|
Per Share Analysis
- . Earnings
per share (sen) (Blue Bar)
- Dividend
per share (sen) (Red Bar)
- Net
total assets per share (Green Line)
1) Earnings
per share
3A Earning per share is following
16 % trend line for the past 10 years except in 2013 (-36 %) and 2016 (70%).
2) Dividends
per share
3A dividend had growth every two
years 1.2 sen for (2012&2013), 1.4 sen for (2014&2015), 1.8 sen for (2016&2017) and 2.0 sen for
(2018&2019).
Besides that 3A had issue 1 bonus shares
for every 4 3A shares on 23 may 2017.
3) Net
total assets per share
3A net total assets per
share is following the trend of 14.2 % growth rate for the past 10 year.
|
Pro:
|
|
· - 3A has growing earning per share for
the past 10 years
· - 3A has growing dividend for the past
10 year despite issues bonus shares
· - 3A has growing net total assets per
share for the past 10 years
|
Director’s Remuneration
Some
company paid high remuneration to director despite low profit. Let see how much
is 3A director’s remuneration in comparison to staff fee and operating profit.
The
director remuneration maintain at 25 % of the total salaries expense since 2016
which is slightly high. The director remuneration did not decrease despite
lower operating profit in 2018 and 2019
|
Cons:
|
|
· - High director remuneration (25 %) of
total salaries expenses
· - Director remuneration did not reduce
despite lower operating profit.
|
ESOS and Warrant
No
ESOS and Warrant
Material Ligation
3A
had no material ligation as of 3th November 2020.
Return on Equity
Return
of equity can be calculated through Du Point Analysis which uses:
- Net
Profit Margin to measure operating efficiency, how much money gets out from its
revenue
- Asset
Turn Over to measure asset efficiency, how effective the company make use of
its asset
- Equity
Multiplier measure of financial leverage.
|
5 Years Return on Equity Average
|
10.56 %
|
|
10 Years Return on Equity Average
|
8.95 %
|
From the chart, 3A
return on equity is mainly follow the trend of the profit margin.
Altman
Z Score
Companies with Altman Z
score < 1.8 is likely headed for bankruptcy while Z score > 3 is unlikely
headed for bankruptcy.
Convid
19
3A operation is not
affect by Movement Control Order by Malaysia Government since 18 March 2020 to
fight Convid 19. 3A is classified as essential services. Despite the Convid 19,
3A earning per share for the first 6 months of 2020 had increase by 12.95 %
compared to same period last year.
Market
Research
Price Target : RM 0.98
- 2QFY20 revenue down 0.9 % YOY
- 2QFY20 PBT grew by 14.3% YOY
IVKLS
Value
1.30
