HLBank Research Highlights

Panasonic Manufacturing Malaysia - Another Grim Record

HLInvest
Publish date: Fri, 25 Feb 2022, 10:34 AM
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This blog publishes research reports from Hong Leong Investment Bank

PMM recorded core PAT of RM15.2m (6.2x QoQ, -58% YoY). This brought 9MFY22 sum to RM35.3m, a decrease of -55% YoY. This account for only 38%/41% of our and consensus forecasts. Overall, sales were affected due to the disruption in the manufacturing activities due to Covid-19 restrictions which was then made worse by the flood incidents that affected its plants. Elevated raw material prices expected to persist in the near future, crimpling margin. We revise our FY22/23/24 earnings downward by -22%/-22%/-12%. After forecast changes and rolling over our valuation from FY22 (from March) to CY22, our TP decreases slightly to RM25.00 (from RM25.70) based on unchanged 17x PE multiple. Reiterate HOLD.

Below expectations. PMM recorded 3QFY22 results with revenue of RM264.6m (+87% QoQ, +1% YoY) and core PAT of RM15.2m (6.2x QoQ, -58% YoY). This brought 9MFY22 sum to RM35.3m, a decrease of -55% YoY. This account for only 38%/41% of our and consensus forecasts. The deviation was on the back of lower than-expected revenue coupled with margin deterioration. 9MFY22 one-off adjustments include gain on derivatives (RM1.1m) and forex loss (RM649k)

Dividend. None declared. 9MFY22 DPS amounted to 15 sen (9MFY21: 15 sen).

QoQ/YoY. Revenue increased by +87% QoQ/+1% YoY attributable to recovery in backlog orders from 2QFY22 with Covid-19 restrictions. Export sales showed encouraging rebound in Heating & Ventilation A/C Company (HVAC). Increase in export sales more than offset the decline in domestic dales for both Living Appliances and Solutions Company (LASC) and HVAC. PMM chalked in core PAT of RM15.2m (- 58% YoY) due to (i) decrease in revenue; (ii) elevated raw material prices; (iii) operating disruption during flood incident in Dec 2021; and (iv) lower contribution from associated company of RM1.7m vs RM3.8m in SPLY.

YTD. Top line eased by -7% on the back of lower sales in both domestic (-11%) and export markets (-4%). Bottom line tumbled by -55% to RM35.3m due to (i) lower revenue; and (ii) lower EBIT margin by 5.4ppt on the back of elevated raw material prices.

Outlook. We expect PMM to face margin squeeze on the back of elevated raw material prices. On top of that, the group also experienced operation disruptions during the flood incident in Dec 2021. 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. Based on the current assessment, the full operation is expected to resume by March 2022. 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 -22%/-22%/-12% to account for lower revenue and crimpling margin.

Maintain HOLD. After earnings revision and rolling over our valuation from FY22 (from March) to CY22, our TP decreases slightly to RM25.00 (from RM25.70) based on unchanged 17x PE multiple. Despite the uncertainties, we reckon PMM can weather thru this storm supported by its balance sheet strength of a net cash position of RM412.7m (or RM6.80 per share) as end of Dec 2021.

 

Source: Hong Leong Investment Bank Research - 25 Feb 2022

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