HLBank Research Highlights

Panasonic Manufacturing Malaysia - Breaking Above Estimates

HLInvest
Publish date: Mon, 31 May 2021, 10:02 AM
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This blog publishes research reports from Hong Leong Investment Bank

PMM reported FY21 core PAT of RM122.2m (+10.0% YoY) that exceeded our and consensus expectations, accounting for 117% and 125%, respectively. Outlook wise, we expect sales to the Middle East to see sustainable recovery. Note that the sales to this region grew 70% QoQ / 27% YoY and the products sold are of higher-margin (vacuum cleaners and home showers). We revise FY22/23 earnings upward by 4%/8%. After earnings adjustment our TP increases from RM31.29 to RM34.71 based on an unchanged 17x PE of FY22 EPS. Upgrade to BUY.

Beat expectations. PMM reported 4QFY21 core PAT of RM44.2m (QoQ: +22.8%, YoY: +75.5%) brought FY21’s figure to RM122.2m (+10.0% YoY). This beat our and consensus expectations, accounting for 117% and 125% of full year forecasts, respectively. The outperformance was due to (i) higher-than-expected associate contributions; and (ii) lower opex from cost cutting measures. FY21 core PAT figure was arrived at after adjusting for derivative gain (RM207k), forex loss (RM4.3m) and impairment loss of assets (RM1.6m).

Dividend. Declared DPS of 148 sen (4QFY20: 183 sen) which goes ex on 8 Sep 2021. FY21 DPS amounted to 163 sen (FY20: 198 sen).

QoQ/YoY. Top line staged a +1.8% QoQ/+29.8% YoY increment mainly due to higher export sales for both of fan products and home appliances segments. Additionally, the quarter also benefit from backlog orders due to the temporary closure of factory operations towards the end of 3QFY21 after positive cases were detected. Higher export sales were moderated slightly from shipment delay issues arising from global tight supply vessels and port congestions. YoY sales increased was also attributable to low base effect from SPLY as group’s sales were impacted by closure of factory from mid-March 2020. Core PAT grew encouragingly by +22.8% QoQ/+75.5% YoY buoyed by (i) improvement in EBIT margin (+1.7ppt QoQ and YoY); and (ii) higher associates contribution by 3.5x QoQ/3.3x YoY.

YTD. Temporary production halt and slowdown in export sales volume led to sales declining -7.4%. However, core PAT fared better with improvement of +10.0% thanks to the impressive turnaround of associates contribution (FY21: RM20.3m, FY20: - RM300k) and lower effective tax rate (FY21: 13.8%, FY20: 17.2%).

Outlook. For export market, we expect sales to the Middle East to see sustainable recovery on the back of easing trade sanctions with President-elect Biden’s victory. Note that the sales to this region grew 70% QoQ / 27% YoY and the products sold are of higher margin (vacuum cleaners and home showers). Barring any unforeseen circumstances, we opine a rebound following a low base effect coupled with the recovery thesis following ongoing vaccination programme globally. Moving forward, we expect contribution from associate company to be in the upward trajectory on the back of prudent cost management with lower admin and marketing expenditures.

Forecast. We revise our FY22/23 earnings upward by 4%8% after baking in higher EBITDA margin and associates contribution. Upgrade to BUY; TP of RM34.71. After earnings adjustment our TP increases from RM31.29 to RM34.71 based on an unchanged 17x PE of FY22 EPS. We reckon PMM can weather thru the near term uncertainties supported by its balance sheet strength of a net cash position of RM523.9m (or RM8.60 per share) as end of Mar 2021

 

 

Source: Hong Leong Investment Bank Research - 31 May 2021

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