Rhone Ma Holdings Bhd recorded 17.1% year-on-year (YoY) growth in its core net profit to RM10.3 million during the first nine months of financial year 2024 (9MFY24), which met market expectation, as its nine-month revenue grew 7.7% YoY to RM159.7 million, mainly driven by stronger performance in animal health and other businesses, according to Affin Hwang Investment Bank Bhd (Affin Hwang IB).

Animal health products and equipment segment accounts for up to of 81% of Rhone Ma's top line revenue through a broad range of animal health products, such as pharmaceutical, vaccines, feed additives, pesticide and others.

Affin Hwang IB has maintained its HOLD call for Rhone Ma with an unchanged target price of RM0.70, which is almost at par with the market valuation of the company.

As at 11:05am Nov 14, Rhone Ma's stock traded at RM0.705, up two sen from its previous closing of RM0.685. (Stock updates from Bursa Malaysia)

In the nine-month period, animal health revenue rose 18.9% YoY to RM129.8 million, supported by higher demand for both companion animal products and livestock products, while other businesses were also up by 34.9% YoY to RM4.9 million, supported by the growth in its farm consultation business.

On the back of higher revenue, its nine-month core net profit grew stronger by 17.1% YoY, as a result of improved gross profit margins and lower distribution costs as a percentage to revenue.

Meanwhile, the third quarter core net profit slipped 8.9% quarter-on-quarter (QoQ) to RM3.1 million. Rhone Ma's quarterly sales fell by 8.7% QoQ to RM51.5 million from RM56.4 million due to lower contributions across all segments, in particular, other businesses and food ingredients which reported a steeper revenue decline of 15.8% QoQ and 9.4% QoQ, respectively.

Rhone Ma's 9MFY24 core net profit of RM10.3 million accounted for about 75% of analysts' full-year projection at RM13.7 million.

Rhone Ma is favoured by analysts owing to its proactive management team, extensive product portfolio, and expanding manufacturing capacity. Nevertheless, cost pressures are expected to continue to weigh on its 2024-2025 profit margins and cap its profit growth trajectory.

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.