INVESTMENT HIGHLIGHTS

• 4QFY18 earnings declined by -6.0%yoy to RM25.1m

• Home appliance segment recorded strong performance

• Final and special dividend declared totalling to 233sen

• Downgrade to NEUTRAL as prospect of better earnings has been factored into current valuation

Slightly lower than estimated. Panasonic Manufacturing Malaysia Bhd (Panasonic) 4QFY18 earnings declined by -6.0%yoy to RM25.1m. This brings its full year FY18 earnings to RM131.0m. This translates into an increase of +3.1%yoy. The recorded earnings is slightly lower than ours and consensus expectations, accounting for 93.2% and 94.9% of full year FY18 earnings forecasts respectively.

Home appliance segment recovered. The commendable FY18 performance was due to the strong growth of the home appliance segment which recorded a profit before tax (PBT) growth of +54.2%yoy. This is mainly attributed to the; (i) higher sales from Vacuum Cleaner products primarily from the Middle East markets as the economic environment in the Gulf improves; and (ii) cooler weather in this region also contributed to higher sales of home shower products especially in the Vietnam and Malaysia markets.

Final and special dividend declared. A final dividend of 133 sen per ordinary share and special dividend of 100 sen per ordinary share has been proposed by the board of directors for FY18. This is subjected to the shareholders’ approval at the forthcoming Annual General Meeting. This brings the cumulative dividend for FY18 to 248 sen.

Prospects. We believe that earnings will improve going forward driven by the; (i) completion of two new plants in 2018 and early 2020 respectively which is expected to increase production capacity by +25% as well as (iii) decrease in effective tax rate by 4%-5% from FY19 as a result of additional tax incentive in regards to research and development expenditure.

Downgrade our recommendation to NEUTRAL with an unchanged TP of RM38.15. Share price had risen +13.6 since our BUY recommendation on the 28th February 2018, and we believe at the current price better earnings prospect has factored in. Therefore, we downgrade our recommendation to NEUTRAL with an unchanged target price of RM38.15. This is based on pegging the FY19 EPS of 276.5sen per share to PER of 13.8x.

Source: MIDF Research - 22 May 2018