Investment Highlights

• We maintain BUY on Power Root with an unchanged fair value (FV) of RM2.67/share. Our FV of RM2.67/share is based on an unchanged FY24F PE of 18x, 0.5 standard deviation below the group’s 3-year average of 21x and on par to the mean forward PE for F&B sector. We make no adjustment to our neutral ESG rating of 3-stars.

• We maintain our FY24F–FY26F earnings for Power Root as the impact from the land acquisition is negligible.

• Power Root entered into a deal yesterday to purchase 116 parcels of land in Johor Bahru from GreatEarth Development (GreatEarth) for RM25mil cash. The acquisition price of RM25mil is a small 2.6% of Power Root’s current market capitalisation of RM963mil.

• The status of the vacant freehold landbank is residential and spans 17.7 acres (771,949 sq ft). The transaction will be completed within 6 months from the date of the agreement.

• The acquisition price of RM25mil translates into RM32/sq ft, which we believe is fair. We reckon that market prices of land in the same area range from RM30/sq ft to RM80/sq ft.

• Power Root does not have plans for the land yet. We think that the group may build staff accommodation or convert the land to industrial use to build a plant in the future.

• We believe that Power Root would not face issues financing the acquisition as it has cash reserves of RM77mil as at end-March 2023. Hence, we are neutral on this development for now.

• We continue to like Power Root for its strong export potential and pricing power.

• At a compelling FY24F PE of 14x, Power Root is substantively trading below its historical 3-year mean of 21x and sector average of 18x while offering an attractive dividend yield of close to 6%.

Source: AmInvest Research - 28 Jun 2023