| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
The company’s 12-month financial performance for FY25 saw its PATAMI (Profit After Tax and Minority Interest) reach RM33 million, falling below expectations and constituting only 75% of the full-year forecast. This shortfall was primarily attributed to weaker-than-anticipated margin realization. In light of this, the investment bank has revised its PAT margin assumptions downwards to 40%-43% from the previous 50%-60%, leading to a 14% reduction in FY26E/FY27E earnings forecasts. Consequently, the target price has been lowered by 14% to RM0.85 from RM0.99, and the recommendation has been downgraded from BUY to HOLD.
Performance Review
The underperformance in 12MFY25 was largely driven by several factors. In the fourth quarter of FY25, the Property & Construction division reported no operating revenue, and the Printing & Publishing segment’s contribution was significantly weaker, recording only RM0.02 million compared to RM4 million in 4QFY24. Compounding these issues, the effective tax rate surged to 29% for 12MFY25 (from a tax refund in 12MFY24), further pressuring bottom-line results. No dividends were declared, consistent with the company’s recent policy.
On a year-on-year basis, revenue and PATAMI increased by 34% and 30% respectively, primarily boosted by stronger contributions from the Fertiliser segment within the Group’s integrated bio-conversion operations. Gross Profit (GP) margin expanded significantly to 71% in FY25 from 54% in FY24, reflecting improved cost management and better absorption of production overheads. EBITDA margin also strengthened to 69% (from 56% in FY24) due to operating leverage and higher other income. However, the PATAMI margin slightly eased to 37% (from 38%) due to a higher effective tax rate.
Quarter-on-quarter, revenue marginally softened by 1% to RM28 million, mainly due to lower contributions from the Printing & Publishing and Manufacturing segments. PATAMI experienced a sharp 75% decline to RM3 million, primarily due to a significantly higher effective tax rate (ETR) of 73% in 4QFY25 (compared to 0.0% in 3QFY25). While EBITDA margin improved quarter-on-quarter to 79% (from 58%), the overall decline in bottom-line performance was heavily influenced by the elevated tax expenses during the quarter.
Future Outlook and Valuation
Despite the recent earnings pressures, the long-term demand for both fertiliser and pulp & paper is expected to remain robust. This outlook is supported by key strategic initiatives, including a joint venture with Hong Kong Paper Source to establish Neuwhite Paper Pulp Sdn Bhd (NWPP) for a 150,000-MTPA bleached EFB pulp mill under GTP Phase 2A. Additionally, the near completion of the 30,000-MT solid fertiliser plant and three strategic agreements (Libya, Padi Global, and DOA Integrated Farming) are set to broaden domestic and international fertiliser applications from FY26E onwards.
However, the revised FY26E/FY27E PAT margin assumptions (40%-43%) now reflect the higher effective tax rate, leading to a 14% cut in FY26E/FY27E earnings. The target price has been consequently revised down to RM0.85 (from RM0.99), based on an unchanged 11.8x P/E multiple applied to its FY26E projected EPS of 7.2 sen. The recommendation has been downgraded from BUY to HOLD.
