PMM missed estimates with FY22 core PAT of RM50.5m (-58.7% YoY) which only made up 70%/68% of our and consensus forecasts. Outlook wise, we expect PMM to continue face margin squeeze on the back of elevated raw material prices. Additionally, we opine the supply chain challenges with global tight supply of vessels and port congestions will continue to affect the group’s performance. We revise our FY23/24 earnings downward by -16%/-9% to account for lower revenue and crimpling margin. After earnings adjustment and rolling over our valuation, our TP decreases to RM22.33 (from RM25.00) based on 17x PE of FY23 EPS. Downgrade to SELL.

Missed expectations. PMM reported 4QFY22 core PAT of RM15.2m (QoQ: +0.2%, YoY: -66.7%), which brought FY21 sum to RM50.5m (-58.7% YoY). This missed our and consensus expectations, accounting for only 70% and 68% of full year forecasts, respectively. The disappointment was no thanks to (i) lower-than-expected sales from operations disruptions; and (ii) margin compression from elevated raw materials. FY22 core PAT figure was arrived at after adjusting for derivative gain (RM993k) and forex gain (RM29k).

Dividend. Declared DPS of 68 sen (4QFY21: 148 sen) which goes ex on 8 Sep 2022. FY22 DPS amounted to 83 sen (FY21: 163 sen).

QoQ. Top line decreased by -21.1% to RM208.8m due to (i) impact of the flood incident on operations; and (ii) lower seasonal sales from home shower products in 4QFY22. Despite the lower sales, bottom line was flat +0.2% at RM15.2 from (i) higher contribution from associates by 5.3x; and (ii) tax incentive received from promotion of export, double deduction from R&D expenses and special reinvestment allowances under the PENJANA program by the government.

YoY/YTD. Revenue slumped by -21.4% YoY/-10.9% YTD dragged by both the Living Appliances and Solution LASC (-16.9% YTD) and Heating & Ventilation A/C HVAC (- 7.4%) segments. The lower sales was on the back of decreased in production attributable to the flood incident that happened in mid-Dec 2021 which impacted operations in the SA2 plant (fan and vacuum cleaner products) as well as interfere d with the operations with PMM key suppliers. Core PAT declined even further by -65.7% YoY/ -58.7% YTD to RM50.5m on the back of (i) lower revenue; (ii) EBITDA margin compression -6.9ppt YTD with higher cost of raw materials; and (iii) lower share of profit from the associated company.

Outlook. We gather that both domestic and export sales recorded declines of 9% and 28%, respectively in the current quarter. We expect PMM to continue facing margin squeeze on the back of elevated raw material prices. At the current juncture the production has resumed fully starting since March 2022 after the disruption from flood incident in Dec 2021. The losses from the flood incident amounted to approximately RM24.7m. Additionally, we opine the supply chain challenges with global tight supply of vessels and port congestions will continue to affect the group’s performance.

Forecast. We revise our FY23/24 earnings downward by -16%/-9% to account for lower revenue and crimpling margin.

Downgrade to SELL. After earnings adjustment and rolling forward our valuation year to FY23 (from CY22), our TP decreases to RM22.33 (previously RM25.00) based on an unchanged 17x PE multiple. We reckon that the multiple headwinds to persist and would pose a challenge to PMM earnings moving forward.

Source: Hong Leong Investment Bank Research - 1 Jun 2022