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Friday, May 06, 2016

3A: Living Up to Its Name?

Background

Three-A Resources Bhd ('3A') is involved in the manufacture and sales of Food & Beverage ingredients such as liquid caramel, caramel color, NFV, HVP, soya protein sauce, glucose syrup, and maltose syrup. 

3A won the ASIAMONEY Award in 2009 for being the best-managed small firm (here). In the same year, Wilmar International Ltd acquired 61.6 million shares representing 16.67%-stake in the company (here). The stake has reduced to 15.65% due to additional 24 million shares issued in 2010 to finance its expansion program.

Historical Financial Performance

3A's top-line and bottom-line made new high in FY2014 as well as FY2015. Its revenue rose 100% from RM200 million in FY2009 to RM400 million in FY2015. During that period, its PBT dropped from RM25 million to RM15 million in FY2011 & FY2013, before surpassing the RM25 million mark in FY2014 & hitting the RM30 million last year.


Chart 1: 3A's last 10 years' P&L


Chart 2: 3A's last 10 years' Cash Flow

Recent Financial Result

Latest quarterly result for QE31/3/2016 is very encouraging. Its revenue crossed the RM100 million mark for the first time. However, its PBT is still short of its recent quarterly high of RM10 million recorded in QE30/9/2015.


Table 1: 3A's last 10 quarters' P&L


Chart 3: 3A's last 10 quarters' P&L

Financial Position

As at 31/3/2016, 3A's financial position is deemed satisfactory. Its current ratio stood at a high of 4.2x while its total liabilities to equity was only 0.2x.

Valuation

3A (closed at RM1.06 yesterday) is now trading at a PER of 18x (based on last 4 quarters' EPS of 5.9 sen). While its PER is deemed high for a small-cap stock, its high valuation can be justified based on the industry exposure (the F&B sector) and healthy growth (of 29% last 4 quarters). That high growth would give the stock an attractive PEG ratio of 0.6x.

Technical Outlook

3A has been sliding for the past 5 years after making a high of RM2.35 in early 2010. The drop has been cushioned by a tentative uptrend line, SS at RM0.90-1.00 over the past 1 year. There was a short rally in late 2015 which failed. At the current price of about RM1.00, the stock has good support.


Chart 4: 3A's daily chart as at May 4, 2016 9Source: Shareinvestor.com)
 
Conclusion

Based on good financial performance, reasonable valuation & mildly bullish technical outlook, 3A is a very good stock to consider for long-term investment.

Note: 
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, 3A.

4 comments:

ronnie said...

Hi Alex,

Thank you once again for discovering this gem of a company.

I studied the financial statements. The business in China, the JV with Wilmar, looks like it's is rapidly improving and about to reach critical mass.

When it reaches critical mass in the second half of this year, profit growth will be great. It has taken 4 years for the JV to succeed, but it will be a rewarding wait as the potential in China is tremendous.

Three-A has a strong balance sheet which should bode well for shareholders.

ronnie said...

Hi Alex,

You are spot on with Three-A. I bought a few shares.

Could you please advise me on what to do next?

Alex Lu said...

Hi ronnie

Three-A is approaching its July 2015 high of RM1.27. We will be looking for an upside breakout to carry the stock into an uptrend. The momentum is much stronger now than in July last year. ADX is approaching the 50-mark while it barely made the 30-mark in July last year. While I am cautiously optimistic for the medium-term, I understand the urge to take profit in the current market. If you choose to take profit, you may consider holding back some just in case it flies right past the resistance. As always, good luck!

ronnie said...

God bless you Alex.

Thank you so much. You are truly a generous gentleman.