1QFY21 core loss after tax of -RM3.9m (vs. core PAT of RM25.2m in 4QFY20 and RM28.0m in 1QFY20) is below ours and consensus expectations as we had expected the company to be marginally profitable in 1QFY21. We lower our FY21 earnings forecasts by 7.2% to account for lower sales volume in FY21. After our earnings adjustment, our TP falls from RM29.40 to RM28.40 based on unchanged 17x PE multiple on mid-FY22 earnings. Despite expected weaker earnings in FY21, we reckon PMM has the balance sheet strength to weather thru this storm. As of end-June, PMM has a net cash position of RM528.9m (or RM8.71 per share). Maintain HOLD.

Below expectations. 1QFY21 core loss after tax of -RM3.9m (vs. core PAT of RM25.2m in 4QFY20 and RM28.0m in 1QFY20) is below ours (FY21 core PAT forecast of RM98.5m) and consensus expectations (FY21 core PAT forecast of RM97.2m) as we had expected the company to be marginally profitable in 1QFY21. Losses were due to larger-than-expected sales decline. Core PAT figure was arrived at after adjusting for derivative gain of RM1.4m.

Dividend. None declared (1QFY20: None). PMM typically declares dividend twice a year, in 2Q and 4Q.

QoQ: Sales declined 24.7% due to the impact of MCO on operations. Note that PMM’s factory was shut between mid-March and early May. PMM reported core loss after tax of -RM3.9m (from RM25.2m) due to (i) lower sales; (ii) loss of -RM2.9m from associate trading company (from RM4.0m profit); and (iii) fixed cost component of cost structure.

YoY: Sales was down by approximately half (-47.1%) due to the impact of the MCO on production operations. We note that domestic sales were most severely hit, which declined 77.3% due to (i) being unable to fulfil certain orders during factory shutdown period; (ii) closure of retailers during the MCO period; and (iii) slowdown in the property sector (property developers purchase fans for property development projects). Core loss after tax of -RM3.9m (from RM28.0m) was due to similar reasons mentioned above.

Outlook: With the resumption of production operations from early-May and relaxation of MCO rules, we expect PMM to return to profitability in 2QFY21. Despite this, we expect sales to continue to be tepid for the foreseeable future. With the US calling for continued sanctions on the Middle East, we expect sales to the region to continue to be lacklustre. Note that sales to the Middle East declined by -21.6% and -12.8% in FY19 and FY20, respectively. Furthermore, the slowing down of property launches domestically should continue to dampen sales of fans as PMM sells a large number of fans to property developers.

Forecast. We lower our FY21 earnings forecasts by 7.2% to account for lower sales volumes in FY21.

Maintain HOLD, TP: RM28.40. After our earnings adjustment, our TP falls from RM29.40 to RM28.40 based an unchanged 17x PE multiple on mid-FY22 earnings. Despite expected weaker earnings in FY21, we reckon PMM has the balance sheet strength to weather thru this storm. As of end-June, PMM has a net cash position of RM528.9m (or RM8.71 per share). Maintain HOLD.

Source: Hong Leong Investment Bank Research - 24 Aug 2020