INVESTMENT HIGHLIGHTS

• 9MFY17 revenue increased by +4.6%yoy due to higher demand from the ‘fan and other products’ segment

• However, 9MFY17 normalised earnings decreased by - 3.5%yoy, mainly due to less favourable product mix

• Nonetheless, the results was within our expectation

• Maintain NEUTRAL with an unchanged target price of RM35.32 per share

Improvement on quarterly earnings. Panasonic Manufacturing Malaysia Bhd’s (Panasonic) 3QFY17 normalised earnings came in at RM35.8m, an improvement of +5.1%yoy. The exceptional items consist of loss on foreign exchange (-RM1.3m) and loss on derivatives (-RM3.2m). The increase in earnings was mainly due to lower effective tax in view of the tax incentives enjoyed for the promotion of exports. This, however, was partially impacted by the lower fan sales from both domestic and export markets.

Lower blended margin. On a cumulative basis, Panasonic’s 9MFY17 normalised earnings amounted to RM112.4m, a slight decrease of -3.5%yoy. Despite registering higher 9MFY17 revenue, the decrease in earnings was mainly impacted by higher operational expenses. Note that the 9MFY17 normalised profit margin decreased to 12.8% from 13.9% achieved for 9MFY17. Nonetheless, Panasonic’s 9MFY17 financial performance came in within our expectation, accounting for 73.7% of our FY17 full year earnings estimates.

Revenue. 9MFY17 revenue grew by +4.6%yoy to RM875.7m mainly due to higher sales in the domestic market for fan products. The sales momentum was gained from various promotional campaigns of year end festival sales and ‘Cooking Caravan’ road shows which featured LED and DC Fan products that were well received.

Target price. We maintain our target price of RM35.32 per share. This is premised on PER18 of 13.5x and EPS18 of 261.6sen per share. The assigned PER multiple is the group’s three year average historical PER.

Maintain NEUTRAL. Despite stellar performance from fan product segment, the home appliance segment has posted weaker numbers. This has impacted the group’s performance. In addition, income from its 40%-owned associate, Panasonic Malaysia Sdn Bhd, continues to dwindle. All factors considered, we maintain our NEUTRAL recommendation on the stock.

Source: MIDF Research - 1 Mar 2017