3QFY20 core PAT of RM25.5m (QoQ: -19.6%, YoY: +19.6%) brought 9MFY20 figure to RM85.2m (-6.3% YoY), which was in line with ours and consensus expectations, accounting for 77.7% and 71.6% of forecasts, respectively. Forecasts unchanged as results were within expectation. After rolling over our valuation year to mid-FY21, our TP rises to RM34.00 (from RM30.70) based on an unchanged 17x PE. Our call is upgraded from a SELL to a Hold as share price has fallen by 17.1% since our last downgrade. Furthermore, we note that PMM has a net cash position of RM9.07/share as of end-Dec.

In line. 3QFY20 core PAT of RM25.5m (QoQ: -19.6%, YoY: +19.6%) brought 9MFY20 figure to RM85.2m (-6.3% YoY), which was in line with ours and consensus expectations, accounting for 77.7% and 71.6% of forecasts, respectively. Core PAT figure was arrived at after adjusting for derivative gain of RM1.5m.

Dividend. None declared (3QFY19: None). (9MFY20: 15 sen, 9MFY19: 15 sen).

QoQ: Sales decline of 7.4% was mainly due to weaker domestic sales (-19.7%) from sluggish demand. Core PAT fell 19.6% in tandem with lower sales.

YoY: Sales decline of 7.1% was due to slower sales in all geographical regions except the Middle East. Weaker sales were mainly due to slowdown in demand from home shower products to Thailand and sluggish domestic sales. Despite lower sales, core PAT rose by 19.6% attributable to the reduction of operating expenses (lower material and fixed costs). Note that PMM predominantly sells vacuum cleaners to the Middle East, which is a high margin product.

YTD. Slowdown in domestic and Middle East sales volumes led to sales declining 6.1%. Lower core PAT (-6.3%) was due to (i) lower sales; (ii) losses of RM4.3 from associate trading company (from RM0.3m profit) which was due to slow domestic market demand. This was in spite of lower operating expenses thanks to cheaper raw material prices and operational efficiencies.

Outlook. 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. We expect this to have a long term benefit on the group’s profitability. While slowdown in domestic property sector has led to reduced orders for PMM, sales to other SEA nations have been growing steadily, particularly in home shower units.

Forecast. Unchanged as results were within expectation.

Upgrade to HOLD. TP: RM34.00. After rolling over our valuation year to mid-FY21, our TP rises to RM34.00 (from RM30.70) based on an unchanged 17x PE. Our call is upgraded from a SELL to a HOLD as share has fallen 17.1% since our last downgrade in 8/19. Although we are pessimistic on the group’s domestic sales prospects, we expect sales to SEA countries to grow steadily. Furthermore, we note that PMM has a net cash position of RM9.07/share as of end-Dec.

Source: Hong Leong Investment Bank Research - 27 Feb 2020