HLBank Research Highlights

Panasonic Manufacturing Malaysia - Subpar Performance

HLInvest
Publish date: Thu, 25 Nov 2021, 10:32 AM
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This blog publishes research reports from Hong Leong Investment Bank

PMM’s 2QFY22 core PAT of RM2.5m (-86% QoQ, -95% YoY) brought 1HFY22 sum to RM20.2m (-52% YoY). This missed expectations at 19% and 18% of our and consensus forecasts. All in all, sales were affected due to the disruption in the manufacturing activities amid Phase 1 restrictions. This was then aggravated by the elevated raw material prices coupled with the labour shortage that left the plant to be underutilized. Reiterate HOLD with lower TP of RM25.70 based on unchanged 17x PE multiple on FY22 earnings. Despite the uncertainties, we reckon PMM has the balance sheet strength to weather thru this storm with a net cash position of RM394.9m (or RM6.50 per share) as end of Sept 2021.

Below expectations. PMM reported 2QFY22 results with revenue of RM141.7m (-44% QoQ, -52% YoY) and core PAT of RM2.5m (-86% QoQ, -95% YoY). This brought 1HFY22 sum to RM20.2m, a decrease of -52% YoY. Results is below our and consensus expectations, coming in at 19% and 18% of full year forecasts, respectively. The deviation was on the back of lower-than-expected revenue. 1HFY22 one-off adjustments include gain on derivatives (RM939k) and forex loss (RM604k)

Dividend. Declared DPS of 15 sen, going ex on 21 Dec 2021 (2QFY21: 15 sen). 1HFY22 DPS amounted to 15 sen (1HFY21: 15 sen).

QoQ/YoY. Revenue dipped by -44% QoQ/-52% YoY on the back of the decline in both home appliances (-52% YoY) and fan product (-52% YoY) segments. This was attributable to the disruption in the manufacturing activities amidst Phase 1 restrictions. Note that PMM’s factory was suspended during the EMCO from 3-18 July. PMM chalked in core PAT of RM2.5m (-86% QoQ/-95% YoY) due to (i) decrease in revenue; (ii) elevated raw material prices; (iii) underutilization of plant; and (iv) lower contribution from associated company of RM3.5m vs RM6.0m in SPLY.

YTD. Top line moderated by -12% on the back of lower sales in both domestic and export markets. Export sales to Middle East market and Asia (Vietnam and Hong Kong) experienced significant declined due to the prolonged effect of the various lockdown measures. Bottom line plunged by -52% to RM20.2m due to (i) lower revenue; and (ii) EBIT margin contraction by 4.2ppt on the back of higher raw material cost.

Outlook. We expect PMM to face margin squeeze on the back of elevated raw material prices. Additionally, with the shortage of labour due to restriction on the recruitment of foreign workers, we view that PMM would face additional cost from the increase in allowances for temporary and outsourced workers to mitigate this impact.

Forecast. We revise our FY22/23/24 earnings downward by -15%/-7%/-7% after baking in lower revenue and shrinkage in EBITDA margin.

Maintain HOLD, with lower TP of RM25.70 (from RM30.11) based on unchanged 17x PE multiple on FY22 earnings. Despite the uncertainties, we reckon PMM can weather thru this storm supported by its balance sheet strength of a net cash position of RM394.9m (or RM6.50 per share) as end of Sept 2021.

 

Source: Hong Leong Investment Bank Research - 25 Nov 2021

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