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Author: intelligenttrade   |   Latest post: Tue, 4 Jun 2019, 5:23 PM

 

Panasonic Manufacturing Malaysia - Slow Sales Expected

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Reported 9MFY19 core PAT of RM91.0m was below ours and consensus expectations, accounting for 68.7% and 69.8% of forecasts respectively. The poorer than expected results were due to weak contribution from home appliances to the Middle East. We reduce FY19/20/21 core PAT forecasts by 6.8/5.9/5.4% respectively to account for weaker sales of home appliances to the Middle East. We maintain our HOLD call, albeit with a lower TP of RM36.50 (from RM38.75 previously) based on an unchanged 17x PE of FY20 EPS of 214.6 sen after earnings adjustment. We are positive on PMM’s planned capacity expansion, however, unfavourable sales outlook is expected to drag near term profitability.

Below expectations. Reported 9MFY19 core PAT of RM91.0m was below ours and consensus expectations, accounting for 68.7% and 69.8% of forecasts respectively. The poorer than expected results were due to weak contribution from home appliances to the Middle East.

Dividend. None declared (3QFY18: none) 6M19: 15 sen (6MFY18: 15 sen)

QoQ: Domestic revenue decline of 20.8% was partially mitigated by better sales to the rest of Asia (ex-Japan) (+41.2%), resulting in sales decline of 6.8%. Domestic sales decline was attributed to forward purchasing by retailers and customers during the sales tax holiday period ending August 2018, which subsequently crippled 4Q18 sales. Core PAT decline of 35.7% in tandem with poorer sales.

YoY: Top line declined 9.2% from RM317m to RM287.9m due to poorer home appliance and fan product sales, particularly in domestic (-11.0%) and Middle East (- 27.0%) markets. Core PAT nosedived 42.5% to RM21.3m as a result of poorer sales, unfavourable sales mix and higher raw material costs.

YTD: Core PAT decline of 8.7% was due to (i) lesser sales (-2.2%), (ii) lower contribution of associate distributor company Panasonic Malaysia Sdn Bhd (40% stake) and (iii) decline in sales of high margin products.

Prospects: Increasing trade sanctions to countries in the Middle East is expected to impact PMM’s ability to sell to the region. We note that sales to the Middle East declined 12.3% in 9MFY19 vs SPLY. Middle East accounted for 24.2% of PMM’s total sales in FY18. Furthermore, we expect the slowdown in the domestic property market to affect sales as property developers remain key clients, particularly for the fan products division. Operationally, PMM has announced the expansion of a new wing, which is expected to increase production capacity by 18%. PMM intends to use the space to reduce their reliance on external part makers by increasing their capacity of making appliance parts in house.

Forecast. We reduce our FY19/20/21 core PAT forecasts by 6.8/5.9/5.4% to account for weaker sales of home appliances to the Middle East.

Maintain HOLD, TP: RM36.50. We maintain our HOLD call, albeit with a lower TP of RM36.50 (from RM38.75 previously) based on an unchanged 17x PE of FY20 EPS of 214.6 sen after earnings adjustment. We are positive on PMM’s planned capacity expansion, however, unfavourable sales outlook is expected to drag near term profitability.

Source: Hong Leong Investment Bank Research - 28 Feb 2019

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