Is Power Root Set to Rebound from Its Current Support?

Power Root Berhad, through its subsidiaries, engages in the manufacture and distribution of beverage products primarily in Malaysia. It provides Ready-To-Drink (RTD) coffee, RTD tea, RTD chocolate malt drinks, RTD cereal, and energy drinks. The company markets its products primarily under the Alicafe, Perl Cafe, Oligo, Alitea, and Power Root brand names. It also distributes health and beauty products.

Power Root Berhad also exports its products to 18 countries, including Singapore, United States, Taiwan, South Korea, Brunei, United Arab Emirates, China, Bahrain, Qatar, Oman, Saudi Arabia, Indonesia, Syria, Kuwait, Yemen, Jordan, Egypt, and Lebanon, as well as re-exports its products through overseas distributors/traders to Sudan, Australia, United Kingdom and Philippines. The company was formerly known as Natural Bio Resources Berhad and changed its name to Power Root Berhad in July 2010. Power Root Berhad was incorporated in 2006 and is headquartered in Masai, Malaysia.

Based on full year results for Financial Year (FY) 2016, Power Root achieved RM 367 million turnover, which is considered to be a small to mid-size enterprise based on turnover value. Other aspects of the company’s latest financial results are illustrated in the table below.

Over the past five Financial Year (FY), Power Root’s revenue has a smooth increasing trend from RM 217 million in FY2012 to RM 383 million in FY2015 but experience a drop in FY2016 to RM 367 million. This translates to an average year to year growth of 14%.

Net profit wise, Power Root has a smooth increase from RM 16 million in FY2012 to RM 43 million in FY2016 and the drop in revenue did not hinder its profit increase. This represents a 2.6 times increase or an average year to year increase of 27.67% within the 5 financial year window. Net profit margin wise, Power Root scores a high 11.81%, which is a slightly above average for a manufacturing company. In addition, Power Root’s Return On equity (ROE) is good at 18.31%.

On company’s debt, Power Root has very low total debt to equity ratio at 0.05, meaning only 5% of its company’s value are from long and short term borrowings. The company’s current ratio and cash ratio are also of very healthy value at 2.94 and 0.86 respectively, considering the fact that its products are all fast moving consumer goods.

In terms of dividend, Power Root pays a highly satisfying 5.31% dividend yield. However, its dividend payout ratio is on the high side at 0.753, meaning that the company only retains 25% of its net profit for capital expenditure.

In conclusion, Power Root is a small size enterprise with excellent fundamentals with increasing revenue and net profit trend over the past 5 years and financially strong by having almost negligible debt. The drop in revenue in FY2016 may indicate that the increase in market share for Power Root will be challenging in the upcoming years due to the intense competition across the RTD products (Ready to Drink) market, hence more effort in promotional and advertising activities will have to be conducted to increase its market share, which will likely translate to more cost and thinner margins.

As 61% of its revenue comes from local market and consumer sentiment in Malaysia may remain weak in the coming years due to weaker ringgit and GST implementations, hence share price growth of Power Root over the long term will need to be supported by ongoing good quarterly results to resume its uptrend.

Power Root has just released its Q1 result on 30th Aug 2016, with 36% drop in net profit versus the same quarter for last financial year. Next quarterly results announcement should be on the month of Nov 2016 for Q1 results.

iVolume Spread Analysis (iVSA) & comments based on iVSAChart software – Power Root

Based on 6-month weekly iVSAChart, Power Root has been on a downtrend since Mar 2016 before finding support around RM2.00 level and rebounded in June 2016 till early July 2016, reaching 6-month intraday high of RM2.75.

However, since then the stock has reverse its uptrend and was sold down back to the support level of around RM2.00. The sell down was accompanied by high volume and based on the chart, this stock will move sideways in the short term at best. For investor with long term view, Power Root is a quality company with strong fundamentals and good dividend yields. Hence, long term investors can consider to accumulate around RM2.00 to RM1.95 levels but do look out for more Sign Of Strengths (green arrows) first before accumulating.

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This article only serves as reference information and does not constitute a buy or sell call. Conduct your own research and assessment before deciding to buy or sell any stock. If you decide to buy or sell any stock, you are responsible for your own decision and associated risks.