- We maintain BUY call on Power Root with the same fair value of RM2.67/share based on FY24F PE of 18x – 0.5 standard deviation below its 3-year average. We make no adjustment to our neutral ESG rating of 3 stars.
- FY23 earnings of RM59mil were within our expectation but beat consensus, coming in 3% above our forecast and 6% of street’s. Hence, we retain FY24F-FY25F earnings while introducing FY26F net profit of RM68mil with a conservative revenue growth assumption of 3%.
- The group declared a dividend of 11.75 sen per share for FY23, slightly lower than our estimate of 12 sen per share.
- YoY, FY23 earnings surged by 2.3x backed by a revenue growth of 31%, boosted by higher sales in both local (+29% YoY) and export (+34% YoY) markets, as well as lower advertising and promotion spending, which was down by RM4.5mil (nearly 8% of FY23 net profit).
- 4QFY23 revenue of RM113mil (+6% QoQ, +16% YoY) was fueled by higher sales from export markets (+13% QoQ, +10% YoY). This underpinned 4QFY23 core earnings increase of 52% QoQ on a higher base as 3QFY23 was affected by:
1) lower sales volumes as restocking activities were completed in 2QFY23 before the price hike in January 2023; and
2) export sales fell as more volumes were sold in Qatar in 2QFY23 to cater to the World Cup event.
- Power Root’s near-to-medium term outlook is expected to remain sustainable on 1) improving export markets, and 2) effective cost management strategy including constantly looking for new suppliers for business continuity and reformulation of products without compromising quality as well as ongoing hedging events to safeguard its margin.
- We also expect some savings (2% of FY24F bottomline) from its manpower moving forward due to more foreign worker arrivals, replacing previous local subcontractors which were more costly.
- At 14x FY24F PE, the stock is trading below its historical 3-year mean of 21x while offering an attractive dividend yield of close to 6%.
Source: AmInvest Research - 26 May 2023