PETALING JAYA: Things are looking good for Able Global Bhd (AGB) as its margins are expected to normalise with the moderation of its key input costs.
Provided that input costs remain stable at current levels, the company does not expect any more price hikes, moving forward, said TA Research.
In fact, it said if the input cost continues its downtrend, the group may gradually reduce the prices of its products. AGB does not expect any more demand destruction in the first quarter as its competitors have all caught up in price hikes of their products.
AGB, formerly Johore Tin Bhd, started off as a tin can manufacturing company and is now involved in the food and beverage (F&B) business.
The majority of the prices of raw materials for AGB had peaked around March to May 2022 and have softened since then.
For instance, milk that forms about 30% of the F&B segment’s cost is currently down close to 6% year-to-date.
Meanwhile, palm oil that constitutes 10% of the F&B division’s operating cost has plunged around 27% to date.
Additionally, steel for tinplate that forms around 60% of the tin manufacturing segment’s operating cost has dropped close to 15%.
Considering that the group holds three months of inventory, the research house believes the worst in terms of margin compression is over and expects the net margin to normalise to about 8% from the second half of the year onwards.
TA Research, which is maintaining a “buy” call on AGB with an unchanged target price of RM1.75, said it liked the company due to the growth potential of its F&B segment and the attractive dividend yield it provides.
Meanwhile, the group’s Mexico joint venture completed an audit by the Health Ministry of Mexico in early September and is currently pending lab sample results, which should be received by the end of October.
The Mexican production has been supplying to smaller local chains with utilisation of 10%-20% in the second quarter of the year.
Management expects to break even within two months of starting exports.