FY2020 net income is down 32%, though marginally higher than expected; maintain buy.

Company Background

On August 19, 2010, Axelum Resources Corp. (AXLM was established and registered with the Securities and Exchange Commission to begin direct and toll manufacturing of coconut water and other coconut products for the domestic and foreign markets.
The company utilizes all aspects of the coconut in its manufacturing, resulting in a complete range of coconut items.

CompanyAxelum Resources Corp.
Target PricePHP 3.51
Current Price3
Upside/Downside16%
Outstanding shares3,878 million
Market Cap12,409 million
Free float26%
52-week high3.87
52-Week1.85
YTD Performance-8%
TOP SHAREHOLDERS
CP COMPASS SINGAPORE PTE LTD20.63%
COCO DEUCE HOLDINGS INC10.58%

Net profits for FY2020 is down 32% to PhP526 million (105 percent of our FY estimate)

AXLM recorded a 2% drop in revenue for FY2020 to PhP5.2B, mostly due to supply constraints caused by tight lockdown steps. However, the Company saw a fast improvement by 2H2020, with revenue and net profits rising by 16 percent and 59 percent, respectively, compared to 1H2020 estimates.

Consistent Geographic Revenue

The rapid earnings recovery experienced by AXLM in the second half of last year demonstrates the company’s robust market model and solid demand for its goods. Although various COVID-19 situations per region, revenue share per regional area remained constant, with the United States and the Philippines still responsible for the largest chunks at 66 percent and 11 percent, respectively.

Product Mix

While desiccated coconut remains the largest revenue contributor, its share has decreased from 34 percent in 2019 to 29 percent in 2020. Last year, the coconut milk powder and coconut water parts contributed 15 percent (up from 14 percent) and 27 percent (up from 23 percent), respectively. Coconut water volume increased by 20% in 2020, and we anticipate continued strong contribution from coconut water, as the Company extended its deal with Vita Coco last year.

Margins

AXLM’s gross and operating margins dropped from 2019 terms to 25% (from 29%) and 10% (from 18%) in 2020, respectively. The key causes of increased expenses were higher salaries, wages, and employment insurance (+23.7 percent y-y to PhP191M), freight (+17.6 percent y-y to PhP164M), and advertisement and advertising (from PhP9M to PhP122M). The pandemic caused the company to pay higher costs due to higher delivery fees, routine COVID-19 monitoring, mobility restrictions, and physical distancing, which increased raw and packaging material costs.

Maintain the PhP 3.51 target price.

We retain our fair value estimate of PhP3.51 on AXLM, which represents a 9.7 percent increase from its closing price of PhP2.97 on May 3, 2021.

Material in this article is obtained from sources we believe to be reliable, but its reliability or precision cannot be guaranteed. This is for the sole purpose of providing details and does not provide an offer from us to buy or sell securities mentioned in this document.

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