INVESTMENT HIGHLIGHTS

• The home appliance segment’s FY17 PBT impacted by lower PBT margin as operating costs increased at a faster pace

• Healthier demand was recorded for the fan and other products segment

• All in, full year FY17 financial performance came in lower than expected

• Maintain NEUTRAL with a revised target price of RM32.40 per share

Home appliance segment underperformed. Panasonic Manufacturing Malaysia Bhd (Panasonic) 4QFY17 normalised earnings came in at RM26.2m. This translates into a decrease of - 20.9%yoy. The reduction in earnings was mainly attributable to the lower demand for its home appliances products from the Middle East region as well as higher operating costs. The operating costs was impacted by rising costs of raw materials such as steel, copper, resin and other major components.

Lower than estimated. On a cumulative basis, Panasonic’s FY17 revenue increased steadily by +3.8%yoy to RM1,123.0m due to higher demand for the fan products. Nonetheless, the normalised earnings came in -2.5%yoy lower at RM134.0m. This was mainly due to higher operational expenses. As a result, the PBT margin reduced to 14.3% from 16.0% as at FY16. All in, the group’s financial performance came in below ours and consensus estimates, accounting for 87.8% and 91.8% of full year FY17 earnings estimates respectively.

Impact. We are cutting our FY18 earnings estimates by 8.4% as we are assuming lower revenue contribution and lower PBT margin from the home appliance segment.

Target price. Following our earnings adjustment, we derive a new target price of RM32.40 per share (previously RM35.32 per share). This is premised on pegging forward PER of 13.5x against FY18 EPS of 240sen 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. Fortunately, income from its 40%-owned associate, Panasonic Malaysia Sdn Bhd, has shown some improvement. All factors considered, we maintain our NEUTRAL recommendation on the stock.

Source: MIDF Research - 31 May 2017