Results

• In-Line – FY17 Core PAT of RM131.8m (-4.5% yoy) was broadly in line with our expectations but under consensus estimates at 95% and 90% respectively.

Dividends

• Dividend of 124 sen per share was declared, totaling 139 sen for FY17 was within our expectations.

Highlights

• Qoq: 4Q17 core PAT dived dived 36.9% to RM21.8m from RM34.5m due to 1) Seasonality 2) Lower sales to the Middle Eastern region and 3) Higher raw material costs (steel, copper, resin).
• Yoy: 4Q17 core PAT dipped 14.9% to RM21.8m from RM25.6m due to reasons mentioned above.
• Ytd: FY17 core PAT fell slightly by 2.9% to RM131.8m due to undesirable product mix in the home appliances division and higher raw material costs.
• Home Appliances: Sales grew marginally (0.4%) yoy, however, operating profit dove 32% as operating margin slimmed from 18% to 12% due to less than favourable product mix.
• Fan Products: Sales grew 7.2% yoy while operating profit rose 22.7% as operating margin grew from 14 to 16% attributable to sales to major housing development projects as well as weakening of the ringgit (FY16 average: 4.04 vs FY17: 4.20 MYR/USD)
• Prospects: While ongoing political uncertainty in the Middle East (which accounts for <30% of total sales) continues to affect Panasonic’s export revenue, we expect domestic sales to remain stable. The Star reported Panasonic have not ruled out raising prices in the future as costs of raw materials have increased.

Risks

• Significant rise in key commodity prices
• Strengthening of the ringgit would slow down export sales growth

Forecasts

• Unchanged

Rating

BUY (↔) TP: RM43.20

• PMM has shown robust growth, stable earnings track record, further room for growth (due to capacity expansion), healthy net cash position (RM9.92/share) and a decent dividend yield.

Valuation

• We we maintain our BUY rating with a TP of RM43.20 tagged to a 17x FY19 EPS of RM2.54.
• We believe PMM is undervalued at its current price. A 17x PE(x) is in line with its regional peers.

Source: Hong Leong Investment Bank Research - 31 May 2017