KUALA LUMPUR: Affin Hwang Investment Bank has maintained its earnings forecast for Rhone Ma Holdings Bhd due to its solid performance and alignment with expectations.
However, Affin Hwang's 12-month price target on the stock was lowered to 70 sen from 74 sen to account for ongoing cost pressures and slower-than-expected progress in new business ventures.
Rhone Ma reported a higher first quarter of 2024 (1Q24) revenue of RM51.8 million, driven by higher contribution across all segments – animal health, food ingredients (up 2.5 per cent year-on-yearto RM9.5 million) and others (up 51 per cent yoy to RM1.7 million).
"Overall, the results were within our expectations. Rhone Ma's 1Q24 core earnings accounted for 27.9 per cent of our full-year earnings forecast," it said in a note today.
Affin Hwang's adjusted price target to 70 sen reflects a lower price-earnings ratio of 11 times, down from 12x, due to slower progress in Rhone Ma's dairy business expansion and limited near-term catalysts.
Potential upside risks to the forecast include stronger-than-expected earnings and a quicker, more profitable expansion of the dairy business.
The investment bank continues to hold a positive view of Rhone Ma's proactive management, extensive product portfolio and expanding manufacturing capacity but expects cost pressures to constrain profit margins and growth through 2025.
"We keep our hold rating. While we like Rhone Ma's proactive management team, extensive product portfolio, and expanding manufacturing capacity, we expect cost pressures to continue to weigh on its 2024-2025 profit margins and cap its profit growth trajectory," it said.
Affin Hwang said the upside risks are stronger-than-expected earnings and faster/profitable expansion of the dairy business.
"Downside risks include weaker earnings, stiff competition in the animal health business, operational challenges in the dairy business, and start-up/ construction risks of the milk processing plant," it added.
