Atlan’s long-term outlook positive on duty-free ops, undervalued assets

This article first appeared in The Edge Financial Daily, on July 16, 2018.
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Atlan Holdings Bhd
(July 13, RM4.50)
Maintain buy with a lower target price (TP) of RM6.20:
Atlan Holdings Bhd’s first quarter ended May 31, 2018 (1QFY19) results were below our expectations mainly due to a supply shortage of key alcoholic products.

Meanwhile, a first net dividend per share of 10 sen was declared. We reduce our FY19 to FY21 earnings forecasts by 14% to 19% and our sum-of-parts-based TP by 40 sen to RM6.20.

Excluding a net exceptional loss of RM800,000 (foreign exchange, changes in fair value and donations), 1QFY19 core net profit was RM8.2 million (-28% year-on-year, -50% quarter-on-quarter [q-o-q]) at only 18% of our FY19 net profit forecast.

Its 1QFY19 core earnings were largely dragged lower by the duty-free segment — a global supply shortage of key alcoholic products (namely cognac) and the property and hospitality segment, with lower occupancy rates of properties and higher operating expenditure.

However, these were partly mitigated by the automotive segment’s stronger revenue due to higher orders received from customers. Similarly, q-o-q earnings were also mainly impacted by the duty-free segment’s supply shortage issue.

We reduce our FY19/FY20/FY21 earnings forecasts by 19%/15%/14% after mainly adjusting for lower occupancy rates of its two properties and softer revenue from the duty-free segment to account for the short-term supply issue as highlighted above.

While the visibility of the supply constraint is limited currently, management believes the issue is only short-term in nature.

We maintain our long-term positive outlook for Atlan based on its resilient earnings from its duty-free business and undervalued assets in Jalan Ampang and Bukit Kayu Hitam.

Meanwhile, net cash remains healthy at RM276 million or RM1.09 per share (end-1QFY19), which would support more merger and acquisition activities. — Maybank IB Research, July 13