Results

• In-Line – 1QFY18 Core PAT of RM38.5m (-9.9% yoy, +76.8% qoq) came in within expectations, accounting for 27% of consensus and our full-year forecasts.

Dividends

• None.

Highlights

• YoY: Although revenue increased by 10% to RM327.9m (on the back of higher export sales to Vietnam and the Middle East region), 1Q18 core net profit declined by 10% to RM38.5m as stronger earnings in the home appliances product segment (arising from the absence of development and tooling costs and the introduction of new range of rick cooker products) were more than offset by losses from PMM’s associate trading company (RM230k losses vs. RM3m profit last year).
• QoQ: 1Q18 core net profit swelled by 77% to RM38.5m (from RM26.8m in 4Q17) due mainly to higher sales in the fan segment (which in turn was driven by seasonal promotional campaigns and the introduction of DC LED fan products) as well as better performance from the home appliances division. Note that Home appliances operating profit margin widened from 4% to 13% qoq due to rebounding vacuum cleaner sales (as vacuum cleaners are a high margin product) and the absence of developmental costs of rice cookers in this quarter.
• Prospects: While rising raw material costs will have an impact on PMM’s profitability, we believe margin compression will be mitigated by: (1) An expected turnaround at the rice cooker sub- segment (arising from the absence of development and tooling cost); and (2) An anticipated increase in vacuum cleaner sales to USA (as Panasonic’s vacuum manufacturing plant in America recently shut down operations with the vacuum cleaners supplied to USA expected to be sourced from PMM instead).

Risks

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

Forecasts

• Maintained.

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 (RM10.23/share) and a decent dividend yield.

Valuation

• We maintain our BUY rating with an unchanged TP of RM43.20 based on unchanged 17x FY19 EPS of RM2.54 (in line with its regional peers).

Source: Hong Leong Investment Bank Research - 24 Aug 2017