INVESTMENT HIGHLIGHTS

• 9MFY19 normalised earnings dropped signficantly by -17.3%yoy to RM86.6m

• Declined in export revenue from home appliance segment

• Short term prospect remain challenging in light of lower export demand particularly from the Middle East

• Maintain NEUTRAL with a revised target price of RM35.28

Below expectations. Panasonic Manufacturing Malaysia Bhd (Panasonic)’s 9MFY19 normalised earnings dropped signficantly by - 17.3%yoy to RM86.6m. This is below ours and consensus expectations accounting for 62.2% and 58.5% of full year FY19 earnings forecasts respectively. The poor performance was mainly attributable to the lower export sales for home appliance products.

Declined in export contribution. In the 9MFY19, the home appliance products segments’ profit before tax (PBT) fell by -30.7%yoy. This was mainly attributed to: (i) slower oversea demand, primarily from the Middle East, (ii) rising cost of raw material and, (iii) unfavourable product sales mix. Note that the oversea market constitutes 60% of tolal sales. Of this, Middle East, which is the second largest key market for Panasonic recorded a significant dropped in export sales of RM24.9m or -12.2%yoy. Meanwhile, the domestic market grew by +7.2%yoy due to the higher demand during tax holiday period.

Prospect. Due to the slowdown in export demand from overseas market particularly the Middle Eastern market which contributed historically about 24.0% to total revenue historically, we expect that the outlook for the group will be challenging. This is compounded by by the increasing trade sanctions imposed by the United States of America on certain Middle East countries and also the lack of liquidity in the market.

Impact to earnings. We are revising our FY19F and FY20F earnings downwards by -15.9%yoy and -19.1%yoy in order to take into account the lower export contribution.

Target price. We are revising our target price to RM35.28 (previously RM38.08). This is based on pegging the FY20 EPS of 252 sen per share to PER of 14.0x. The assigned PER multiple is the group’s three year average historical PER.

Source: MIDF Research - 28 Feb 2019