KUALA LUMPUR: London Biscuits Bhd's higher 4QFY18 net profit of RM6.7mil and FY18 net profit of RM13.9mil exceeded expectations, said PublicInvest research.
The research house said the stronger-than-expected quarter was mainly due to lower materials costs on top of better margins from its product mix.
It raised its earnings estimates for FY19-20F by an average of 23%, revised its target price to 71 sen and upgraded its call to trading buy.
"We view the results positively, slightly dimming our cautiousness over flow of sales into earnings, as the results illustrates the changes initiated within the company."
PubllcInvest said it expects steady growth in revenue in tandem with higher utilisation and smoother operations from recent upgrading of production facilities.
It expects the growth driver, potato chips, to be on track to double up to 30% of revenue in two years supported by two planned additional lines, from less than 15% currently.
"The higher margin generated by the segment is also expected to contribute more significantly in improving the Group’s margins in the longer term.
"Having said that, LBB is allocating an estimated capex of RM40m over the next two years from internal funds for capacity expansion as well as distribution networks revampment."
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