HLBank Research Highlights

Panasonic Manufacturing Malaysia - Impacted by the Flood

HLInvest
Publish date: Tue, 25 Jan 2022, 09:19 AM
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We gather that SA2 plant machineries, parts, raw materials and finished goods were affected by the flood in Dec 2021 but the assets are adequately covered by insurance. Barring the flood impact, sales outlook are improving due to the backlog orders from EMCO. To ease the raw material price pressure, PMM have increased its fan segment selling price starting in Jan 2022 and expected to roll out similar measure for other products in Apr. We expect PMM to face margin squeeze on the back of elevated raw material prices and additional cost from the increase in allowances for temporary and outsourced workers in order to mitigate the shortage. Reiterate HOLD with unchanged TP of RM25.70 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.

Below Are Key Takeaways From Our Recent Meeting With PMM.

SA2 plant affected by flood. The continuous rain in Dec 2021 has caused SA2 to be impacted by the flood. We gather that machineries, parts, raw materials and finished goods were affected but the assets are adequately covered by insurance. Additionally, the group’s suppliers were also affected hence adding up to the business interruptions for SA1 plant. Currently, the utilization rate for fan segment is running at 40% and vacuum cleaner is at 80%. Based on the current assessment, the full operation is expected to resume by March 2022.

Sales improving despite some hiccup. Management shared that the revenue outlook and performance for both home appliances and fan segment are improving on the back of backlog orders from EMCO in 2QFY22. Additionally, with the full resumption of business activities, sales are recovering steadily for its associated company Panasonic Malaysia - whose principal activities are the sales and marketing of Panasonic products in Malaysia. However, the fan and vacuum cleaner productions which are manufactured in SA2 plant was halted from 18th to 31st Dec due to flood incident as mentioned above.

Higher selling prices. PMM main raw materials which include copper, aluminium and steel have recorded an upward trend of 38%-76% as compared to Nov 2020. PMM have increased selling prices by 5%-10% for the fan segment starting from Jan 2022. The group is also expecting to roll out similar price hike for other products in April. 2022.

Ramping up in-house injection capabilities. To further strengthen the group’s in house manufacturing capabilities, PMM is increasing its in -house production of injection parts in SA2 plant. As of Dec 2021, 86% of the parts and 84% of the moulds have been successfully transferred in-house. The SA2 plant is also equipped with the robotic auto spray facilities to improve productivity and overall quality process.

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. Unchanged.

Maintain HOLD, with unchanged TP of RM25.70 based on 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 Jan 2022

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