INVESTMENT HIGHLIGHTS

• 3QFY18 earnings grew by +36.4yoy RM42.6m

• This lifted 9MFY18 earnings to RM105.9m, in-line with ours and consensus expectations

• Home appliance segment continues its strong growth

• Fan and other products' performance dropped

• Upgrade to BUY with a revised TP of RM37.00

Seasonally strong quarter. Panasonic Manufacting Malaysia Berhad (Panasonic)’s 3QFY18 earnings grew by +36.4%yoy to RM42.6m. This brings its 9MFY18 earnings to RM105.9m. This is in-line with ours and consensus expectations, accounting for 77.2% and 76.7% of full year FY18 earnings forecasts respectively. The stonger 9MFY18 performance (+5.5%yoy) was due to the strong growth from the home appliance segment. However, this is partially mitigated by the subdued performance of fan and other products’ segment.

Home Appliance segment continues its strong growth. The home Appliance segment continues its strong growth from the previous quarter. As of 9MFY18, its revenue grew by +13.9%yoy mainly contributed to the increase in export sales due 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) prolonged rainy season in Vietnam which resulted in cool weather boosted the sales for home shower products. Consequently, the profit before tax (PBT) increased by +38.4%yoy to RM84.5m.

Fan and other products' segment performance dropped. Revenue for The Fan and other products’ segment dopped by -2.9%yoy which is mainly attributable to the: (i) declining demand from the domestic market and; (ii) a slowdown in government projects for installation of fans. Consequently, due to a tighter profit margin (a drop of -1.3ppts yoy to 15.9%), the Fan and other products’ segment achieved a PBT of RM68.8m, which is lower by -10.2%yoy. The lower earnings was attributable to the rising costs of raw materials as well as a higher operation expenses incurred. As the domestic demand is expected to remain weak, the segment is increasingly reliant on export sales to drive performance.

Impact to earnings. We revising upwards FY18F and FY19F earnings estimates in view of the the stronger- thanexpected export sales recorded for both segments.

Upgrade to a BUY. We upgrade our call to BUY (previously NEUTRAL) with a revised target price of RM37.00 (previously RM35.75). This is based on pegging the FY19 EPS of 268.1sen per share to PER of 13.8x. We are sanguine on the stock prospect as we believe that earnings will improve going forward driven by the: (i) increasing demand from the Middle East and; (ii) completion of two new plants in 2018 and 2019 respectively which is expected to increase production capacity by 25% and improves economies of scale. In addition, the stock has a dividend yield of 4.1% at current price which is quite attractive.

Source: MIDF Research - 1 Mar 2018