Author: PublicInvest | Publish date: Wed, 1 Jun 2016, 10:23 AM
London Biscuits (LBB) reported 3QFY16 net earnings of RM3.6m (+24.3% YoY). Cumulatively, 9MFY16 net earnings grew by 24.5% YoY to RM14.3m, which was better than our expectations. The stronger earnings growth was attributed to both improvements in managing operating costs and sales of higher margin products as opposed to lower margin products, which LBB is slowly phasing out. 9MFY16 revenue on the other hand, grew 3.4% YoY to RM289.5m. We revised our earnings estimates upwards by 10-17% to account for improvement in margin. Hence, we reaffirm ourOutperform call with a higher TP of RM1.03, pegged to 10x our FY17 EPS.
LBB’s confectionery segment 3QFY16 sales rose by 46% YoY to RM38.7m, while the sweets and candies segment revenue increased by 8% YoY. Cumulatively, snacks segment grew the most by 29% YoY. Local sales recorded greater contribution to revenue for both 3QFY16 (65%) and 9MFY16 (54%), compared to exports (3QFY16: 35%, 9MFY16: 46%). For 9MFY16, exports grew by 10% YoY while domestic sales contracted -2% YoY.
Net gearing. LBB’s net gearing was 0.46x as at 3QFY16, 4.2% lower than 0.48x as at 2QFY16. We view it positively as management continues to work on paring down its debt levels, as compared to 1QFY16’s 0.52x and 4QFY15’s 0.59x. We understand that finance costs would be at high level in the near term, but as LBB’s also working on improving its margins through better cost control and phasing out lower margin items, we believe its margins will be sustained.
Capacity utilization. Currently, LBB’s potato chips lines run at an average 65% utilization, while its chewy candy lines’ utilization rate is also c.65%, as it continues to ramp up production. Apart from that, LBB continues to develop new flavours in addition to its current product selections. Its recent product is new cheese flavours for roll cakes and wafers.
Source: PublicInvest Research - 1 Jun 2016
LBB’s confectionery segment 3QFY16 sales rose by 46% YoY to RM38.7m, while the sweets and candies segment revenue increased by 8% YoY. Cumulatively, snacks segment grew the most by 29% YoY. Local sales recorded greater contribution to revenue for both 3QFY16 (65%) and 9MFY16 (54%), compared to exports (3QFY16: 35%, 9MFY16: 46%). For 9MFY16, exports grew by 10% YoY while domestic sales contracted -2% YoY.
Net gearing. LBB’s net gearing was 0.46x as at 3QFY16, 4.2% lower than 0.48x as at 2QFY16. We view it positively as management continues to work on paring down its debt levels, as compared to 1QFY16’s 0.52x and 4QFY15’s 0.59x. We understand that finance costs would be at high level in the near term, but as LBB’s also working on improving its margins through better cost control and phasing out lower margin items, we believe its margins will be sustained.
Capacity utilization. Currently, LBB’s potato chips lines run at an average 65% utilization, while its chewy candy lines’ utilization rate is also c.65%, as it continues to ramp up production. Apart from that, LBB continues to develop new flavours in addition to its current product selections. Its recent product is new cheese flavours for roll cakes and wafers.
Source: PublicInvest Research - 1 Jun 2016
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