This article first appeared in The Edge Financial Daily on January 15, 2018

Atlan Holdings Bhd
(Jan 12, RM4.28)
Maintain buy with an unchanged target price (TP) of RM6: The third quarter ended Nov 30 of financial year 2017 (3QFY18) results were in-line but third interim net dividend per share (DPS) of 10 sen (year-to-date [YTD]: 21 sen) was above our estimates. Earnings growth was mainly held up by the duty free and property segments. Our financial year ending Feb 28, 2018 (FY18) to FY20 earnings forecasts and RM6 sum-of-parts (SOP) TP are intact.

Excluding one-off items totalling to -RM6.6 million (foreign exchange loss, fair value gains), third quarter FY18 (3QFY18) core net profit was RM8.2 million (+13% year-on-year [y-o-y], +5% quarter-on-quarter ([q-o-q]), bringing the nine-month FY18 (9MFY18)core net profit to RM27.4 million (-11% y-o-y) and accounting for 69% of our full-year estimates. Results were within our estimates as we are anticipating seasonally stronger 4QFY18 earnings. Y-o-y, 3QFY18’s core earnings were held up by marginally higher revenue from the duty free segment due to better product and sales mix at the airport and bordertown outlets, and sustained profits from the property and hospitality segments. This, however, was partly offset by slower automotive profits due to higher material costs and maintenance expenses, and a higher effective tax rate of 32% (excluding one-offs; 3QFY17: 25%). 

We maintain our core earnings forecasts. However, we raise our net profit payout forecast to 135% from 100% for FY18 but maintain our conservative FY19 to FY20’s estimates at 100% per annum. This results in FY18/FY19/FY20 net divident per share (DPS) of 21 sen/16.1 sen/16.6 sen respectively.

Atlan Holdings subsidiary Duty Free International Ltd’s (DFI) partnership with Heinemann (via its wholly-owned subsidiary, Heinemann Asia Pacific [HAP]) has remained favourable and has resulted in a positive, synergistic impact in areas such as transportation costs — down 63% y-o-y to RM1.4 million for 9MFY18 — and inventory — down 23% y-o-y to RM166 million (end-3QFY18). We believe there are more operational potentials to be realised from the partnership which could translate into positive earnings impact. — Maybank IB Research, Jan 12