We hosted Webinar meeting with Power Root’s (PWRT) ED to get a business update on the company and its outlook. PWRT is a drinks maker, commonly known with its brand of “Tongkat Ali” and “Kacip Fatimah” beverages and the products are sold domestic and international. It is a component of FBM Small Cap Index with a market capitalisation of RM718m.

Pandemic Impact & Overseas Challenges

• In 3Q21, PWRT sales declined to RM80.6m (+1% qoq, -21% yoy) dragged by challenging environment for both local (-7% qoq) and overseas (-30% qoq) market.

• Locally, MCO/CMCO implementation has disrupted operating hours of super/hypermarkets, convenience stores and petrol kiosks which translated into lower footfall.

• Meanwhile, for overseas market especially in Middle East and North African (MENA) region, sugar tax and VAT affected its pricing point; compounded by reduced expat population.

• To counter a 50% sugar tax in United Arab Emirates (UAE) and Kingdom of Saudi Arabia (KSA), the management priced its Alicafe Italian Roast Coffee at an affordable pre-sugar tax level. This would help to weather any loss in demand instead of being fully-passed on to consumers.

• On quarter basis, Tea, Chocolate and Energy segment growth continued to attract consumer demand from 8.5%, 2.2%, 5.6% to 10.1%, 2.5%, 8.5% of total contribution. Energy drink segment is seeing higher purchase of Per’l Kacip Fatimah and Power Root since 2Q21.

• Moving onward, PWRT plans to develop semi-detached factories catering for its flavouring business. With this, PWRT is able to manufacture its own flavours and sell to third-party customers as well as obtaining better cost optimization ahead.

A resilient drink-maker company

• PWRT is a growing beverage company with extensive export customer base (MENA, SEA, Asia Ex-Sea and others). Based on 9M21 period, its overseas revenue accounted of 51% of total sales. It intends to increase sales presence in non-Gulf Cooperation Council (GCC) countries, particularly in North African countries.

• In 3Q21 period, net cash stood at RM90m with negligible gearing level of 0.003x. We believe there is a larger room for gearing that it can leverage on to optimise its growth potential.

• The dividend payout in respect of FY21 (year-end March) is RM25.4m, which accounted 96.7% (despite the pandemic) of 9M21 net profit, which is far above the company’s standard of 50% dividend policy.

Source: BIMB Securities Research - 8 Mar 2021