2QFY20 core PAT of RM31.7m (QoQ: +13.4%, YoY: -4.3%) brought 1H20 figure to RM59.8m (-14.2% YoY), which was in line with ours but below consensus expectations, accounting for 54.5% and 48.0% of forecasts, respectively. We deem this in line, as 2H typically makes up 45% of full year earnings due to seasonality. We keep forecasts unchanged. We maintain our SELL call and TP of RM30.70 based on an unchanged 17x PE of FY20 EPS of 180.6 sen. Although we are positive on PMM’s planned capacity expansion and net cash position of RM9.03/share as of end-Sep, tepid sales remains a concern for the group.

In line. 2QFY20 core PAT of RM31.7m (QoQ: +13.4%, YoY: -4.3%) brought 1H20 figure to RM59.8m (-14.2% YoY), which was in line with ours but below consensus expectations, accounting for 54.5% and 48.0% of forecasts, respectively. We deem this in line, as 2H typically makes up 45% of full year earnings due to seasonality.

Dividend. DPS of 15 sen was declared, going ex on 20/12/19 (2QFY19: 15 sen). (1H20: 15 sen, 1H19: 15 sen).

QoQ: Weaker domestic sales (due to occurrence of Hari Raya in 1Q20) was partially mitigated by slight growth in export sales to the Middle East, Thailand and Vietnam, resulting in top line declining slightly (-1.0%). Despite this, favourable sales mix (Panasonic sell high-margin home appliances to the Middle East) resulted in core pat rising 13.4%.

YoY: Sales decline of 6.5% was mainly due to high base effect due to tax holiday in 2Q19. Despite lower commodity costs and efforts to reduce fixed costs, core PAT declined 4.3% in tandem with lower top line.

YTD. Sales decline of 5.6% was mainly attributed to weaker home appliance sales to the Middle East in 1Q20. Despite this, cheaper raw materials have resulted in better home appliances contribution (+7.9%). However, decline in fans sales and losses from associate company of RM2.1m (vs RM2.3m profit at the overall EBIT level) resulted in core PAT decline of 14.2%.

Prospects: Operationally, PMM has announced the expansion of a new wing, expected to increase production capacity by 18%. PMM intends to use the space to reduce their reliance on external part makers by increasing their capacity of making appliance parts in house.

Forecast. Unchanged as results were within expectation.

Maintain SELL, TP: RM30.70. We maintain our SELL call and TP of RM30.70 based on an unchanged 17x PE of FY20 EPS of 180.6 sen. Although we are positive on PMM’s planned capacity expansion and net cash position of RM9.03/share as of end Sep, tepid sales remains a concern for the group.

Source: Hong Leong Investment Bank Research - 26 Nov 2019