Investment Highlights

• We maintain our BUY call on Power Root with an unchanged FV of RM2.19/share.

• We continue to like Power Root for: (1) its strong earnings recovery from streamlining of costs and expected growth in both its exports and local sales; (2) its scarcity premium for exposure to the instant coffee segment as Power Root is the closest to a pure play in the segment; and (3) attractive dividend yields of 4.7-6.4% for FY20F to FY22F.

• Operational efficiencies are expected to improve going forward due to the group’s streamlining efforts in its distributorship network and favourable hedged raw material prices.

• Key risks to our forecast are: (1) a slowdown in export sales; and (2) a rise in commodity prices.

• Going forward, we are excited over Power Root’s growth potential, driven by product innovation, growth in its current export markets, penetration of new export markets and streamlining efforts.

• To grow its export markets, Power Root has contracted a bigger distributor in the UAE. Meanwhile in China, the group has revamped its online business model by setting up a dedicated and experienced online sales team to expand the market.

• In Malaysia, the group has introduced the Warung range under its Alicafe brand, which caters to a larger customer base. This is expected to help improve Power Root’s market share in the coffee segment (currently at circa 18– 23% in Malaysia). Power Root’s coffee products make up circa 80% of revenue.

• To enhance the sales and distribution network, Power Root has rolled out a handheld sales force reporting system, which will improve the monitoring of its distribution network.

Source: AmInvest Research - 30 Aug 2019