This article first appeared in The Edge Financial Daily on June 3, 2019

Oriental Food Industries Holdings Bhd
(May 31, 77.5 sen)
Downgrade to hold with a lower target price (TP) of 77 sen: We downgrade our call on Oriental Food Industries Holdings Bhd to a “hold” call with a lower TP of 77 sen on a five-year average price-earnings ratio of 17 times pegged at an estimated financial year earnings per share of 4.5 sen, tweaking our earnings forecast downwards by 16.7% after a disappointing quarter of slack demand for their products. Going forward, the group plans to acquire new machineries to expand their product line. Risks include: i) Rising raw material costs; and ii) a competitive market.

For current quarter under review, Oriental Food’s revenue fell RM7.9 million (-10.77%) year-on-year from RM73.23 million to RM65.34 million attributed to lower sales in both their domestic and export markets. Implementation of Malaysian Financial Reporting Standards 15 impacted revenue as listing fees and advertising and promotion expenses were reclassified as a deduction from revenue. Profit before tax (PBT) was higher due to lower operating costs and foreign exchange gain.

The group’s quarter-on-quarter (q-o-q) performance fell sharply. Revenue fell RM15.6 million (-19.3%) from RM81 million to RM65.3 million. PBT also fell sharply at -54.6% q-o-q or a decrease of RM4 million. This was due to poorer sales in both local and export markets in a quarter shortened by holidays and a short February month.

Oriental Food’s revenue missed our forecast slightly coming in at 96.8% of our full-year estimate. However, profit after tax beat our expectations at 114% of our forecasts due to lower-than-expected operational costs and tax expense.  — Inter-Pacific Research, May 31