PMM’s 2QFY23 core PAT of RM14.2m (+62% QoQ, 5.7x YoY) brought 1HFY23 sum to RM22.9m (+14% YoY). This missed expectations at 35% and 40% of our and consensus forecasts, respectively. All in all, apart from the improvement in sales and backlog orders, we view that the revenue was also beefed up by the increase in product prices that was implemented in 2HCY22. The group is expecting to incur about 6-7% revenue impact from the termination of rice cooker and kitchen appliances products. We revise our FY23 earnings downward by -12%. Maintain SELL, with lower TP of RM16.00 (from RM18.20) based on 17x PE multiple on FY23 earnings. We opine the export outlook to be muted for PMM with the moderation in global growth as a result of a slowdown in major economic activities and sustained inflationary pressure.

Below expectations. PMM reported 2QFY23 results with revenue of RM292.8m (+20% QoQ, +107% YoY) and core PAT of RM14.2m (+62% QoQ, 5.7x YoY). This brought 1HFY23 sum to RM22.9m, an increase of +14% YoY. Results were below our and consensus expectations, coming in at 35% and 40% of full year forecasts, respectively. The deviation was on the back of lower-than-expected margin. 1HFY23 one-off adjustments include loss on derivatives (+RM155k), forex gain (-RM9.0m) and insurance claim received from the flood incident in Dec 2021 (-RM22.3m).

Dividend. Declared DPS of 15 sen (2QFY22: 15 sen), going ex on 20 Dec 2022. 1HFY23 DPS amounted to 15 sen (1HFY22: 15 sen).

QoQ/YoY. Sales improved by +20% QoQ/+107% YoY on the back of increased in both living appliances and solutions (LASC +44% YoY) and heating & ventilation A/C (HVAC +144%) segments. This was attributable to the full market reopening as last year was impacted by business disruption from Phase 1 lockdown and imposition of production capacity constraints. Additionally, the sales was boosted by the fulfilment of backlog orders arising from flood incident in Dec 2021 which continued into this quarter, particularly for fan products. The backlog orders fulfilment was completed in Sept 2022. PMM chalked in core PAT of RM14.2m (+62% QoQ/ 5.7x YoY) thanks to (i) uplift in revenue; (ii) economies of scale from optimal operation of plant; and (iii) higher contribution from associated company at RM5.7m (+17% QoQ; +61% YoY).

YTD. Top line climbed 36% to RM536.5m thanks to higher sales in HVAC (+56%) that offset the drag in LASC segment (-2%). The drag from LASC was attributable to the lower sales of certain kitchen appliance products and rice cookers following the discontinuance of these products. Zooming into geographical sales breakdown, save for Japan (-28%) sales across the board charted good growth with sales to Middle East leaped by 53% owning to higher sales of vacuum cleaner and home shower in 2QFY23. Bottom line grew at slower pace by +14% to RM22.9m due to (i) increased in revenue; and (ii) better contribution from associated company by 3.5x but was partially dragged by the higher effective tax rate (1HFY23: 13% vs 1HFY22: 3%).

Outlook. Apart from improvement in sales and backlog orders, we view that the revenue was also beefed up by the increase in product prices that was implemented in 2HFY/CY?22. The group is expecting to incur about 6-7% revenue impact from the termination of rice cooker and kitchen appliances products. Note that the rice cooker segment has been suffering losses for the past years. Additionally, we opine export outlook to be muted for PMM with the moderation in global growth as a result of a slowdown in major economic activities and sustained inflationary pressure.

Forecast. We revise our FY23 earnings downward by -12% to account for the negative deviation above.

Maintain SELL, with lower TP of RM16.00 (from RM18.20) based on unchanged 17x PE multiple on FY23 earnings. We reckon that the multiple headwinds will persist and pose a challenge to PMM earnings moving forward.

Source: Hong Leong Investment Bank Research - 1 Dec 2022