| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A leading player in the shrimp-farming industry has demonstrated robust financial performance, with its latest earnings significantly surpassing previous periods, driven by enhanced production efficiency and a recovery in export prices. The strong results have prompted a positive outlook from analysts, who anticipate continued growth.
Performance Review
The company reported substantial revenue and adjusted PBT growth for the fiscal years ending in 2023 and 2024. Revenue jumped by 47% and 51% year-on-year respectively, while adjusted PBT surged by 168% and 17% over the same periods. This commendable performance was largely attributed to a gradual recovery in export prices, as competitive “dumping” activities from rivals subsided, and maiden contributions from new farm acquisitions.
Further analysis comparing the latest 12-month period to the previous equivalent saw earnings nearly double, with core profit margin expanding by 7.5 percentage points to 18.5%. This improvement was primarily due to increased production efficiency and non-taxable gains. The company’s vertically integrated model, which includes sophisticated land-based, controlled-environment farming methods and robust biosecurity measures, ensures high shrimp survival rates (averaging 80%), contributing to consistent output and profitability.
Future Outlook and Investment Case
Analysts project the company’s adjusted annualised core profit to grow by 8.0%, 3.9%, and 4.6% for FY2025, FY2026, and FY2027 respectively, underpinned by favourable pricing conditions. Earnings visibility remains strong, supported by foreign buyers communicating order expectations up to six months in advance. The company plans to maintain high survival rates and actively purchase third-party prawns to meet demand, alongside stable average selling prices for both export and domestic markets.
Challenges and Mitigations
Despite the positive outlook, the company faces potential risks, including disease outbreaks and export restrictions/trade tariffs, given its significant reliance on international markets (60% of revenue from exports). Furthermore, a legacy issue involving a doubtful subsidiary loan, currently subject to capital controls in China, continues to pose a challenge to its balance sheet, representing a significant portion of its total assets and shareholders’ funds. Management, however, is actively engaging Chinese authorities to repatriate these funds, with progress being made as capital control policies relax. The company is also implementing robust biosecurity measures and eco-friendly practices to mitigate operational risks and enhance sustainability.
Analyst Recommendation
TA SECURITIES has initiated coverage on the company with a “BUY” recommendation, setting a target price of RM0.25. The positive rating reflects the company’s market leader position in the shrimp-farming industry, strong earnings visibility, and effective operational strategies.
