HLBank Research Highlights

Panasonic Manufacturing Malaysia - Hit by Capacity Constraint

HLInvest
Publish date: Wed, 25 Aug 2021, 09:56 AM
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This blog publishes research reports from Hong Leong Investment Bank

PMM chalked in 1QFY22 results with revenue of RM253.7m (QoQ: -4.5%; YoY: +64.6%) and core PAT of RM17.7m (QoQ: -59.9%, 1QFY20: -RM1.7). This came in below expectations at 14% our and consensus full year forecasts. The disappointment was due to margin deterioration on the back of lower operating capacity coupled with higher raw material prices. With the ramping up of capacity to 100% following the successful vaccination of the group’s workforce , we expect further improvement in its sales moving forward. On the flipside, we note the increased prices in key commodities might pose a risk of shrinking margin. We revise FY22 earnings downward by -4%. After earnings adjustment our TP decreases from RM34.71 to RM33.44 based on an unchanged 17x PE of FY22 EPS. Maintain HOLD.

Below expectations. PMM chalked in 1QFY22 results with revenue of RM253.7m (QoQ: -4.5%; YoY: +64.6%) and core PAT of RM17.7m (QoQ: -59.9%, 1QFY20: - RM1.7). This came in below expectations at 14% our and consensus full year forecasts. The disappointment was due to margin deterioration on the back of lower operating capacity coupled with higher raw material prices. Core PAT was arrived after minor adjustments for forex loss (RM343k) and derivative gain (RM489k).

Dividend. None (1QFY21: None). PMM Typically Declares Dividend Twice a Year, in 2Q and 4Q.

QoQ. Top line moderated by -4.5% to RM253.7m as the operations were disrupted from the imposition of MCO3.0 and Phase 1 restriction. Bottom line plunged by -59.9% to RM17.7m on the back of (i) lower revenue; (ii) EBITDA margin contraction by 8.6ppt due to rising cost of raw materials; and (iii) losses from associated company of - RM500k vs +RM13.3m in 4QFY21 as sales were confined to only online channel.

YoY. Revenue leaped by 64.6% attributable to low base effect from SPLY as group’s sales were impacted by closure of factory from mid-March 2020 (MCO1.0). Domestic market and export sales for fan products and home appliances products grew by 53% and 81%, respectively. Core PAT grew encouragingly to RM17.7m vs losses of - RM1.7m attributable to (i) higher revenue; and (ii) lower losses from associated company from -RM2.9m to -RM500k thanks to the group’s prudent cost management with lower admin and marketing expenditures.

Outlook. With the ramping up of capacity back to 100% following the successful vaccination of the group’s workforce we expect further improvement in its sales moving forward. For export market, we expect sales to the Middle East to see sustainable recovery on the back of easing trade sanctions under President Biden. Note that the sales to this region grew 17% YoY and the products sold are of higher margin (vacuum cleaners and home showers). On the flipside, we note the increase prices in key commodities might pose a risk of shrinking margin.

Forecast. We revise our FY22 earnings downward by -4% after baking in lower EBITDA margin and associate’s contribution.

Maintain HOLD; TP of RM33.44. After earnings adjustment our TP decreases from RM34.71 to RM33.44 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 RM517.3m (or RM8.50 per share) as end of June 2021.

Source: Hong Leong Investment Bank Research - 25 Aug 2021

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