INVESTMENT HIGHLIGHTS

• FY19 normalised earnings dropped by -11.7%yoy due to the decline in sales from Middle Eastern market

• To mitigate this, the group is seeking to penetrate new markets especially in the Asean region

• With a final dividend declared of RM2.11 per share for FY19, cumulative dividend for FY19 amounted to RM2.26

• Maintain Neutral with a revised target price of RM39.32

Slightly below our expectation. Panasonic Manufacturing Malaysia Bhd (Panasonic)’s FY19 normalised earnings dropped by -11.7%yoy to RM110.6m. This lagged ours and consensus expectations accounting for 94.4% and 79.9% of full year FY19 earnings forecasts respectively. The poor financial performance was mainly attributable to the reduction in export sales especially from the Middle East market.

Declined in export contribution. FY19 earnings was dragged by the subdued performance of the home appliance products segments. Its profit before tax (PBT) fell by -32.6%yoy to RM60.0m. This was mainly attributed to the: (i) lower sales volume, primarily from the Middle East i.e. Iran and Saudi Arabia, (ii) rising cost of production and; (iii) unfavourable product sales mix. Note that the oversea market revenue contribution is at 58.0% of total in FY19 (vs FY18: 62.0%). Of this, Middle East region, which is the second largest key market for Panasonic (historical average sales contribution of 24.0%), recorded a significant drop in export sales of RM62.7m (-21.6%yoy). Nonetheless, the domestic market grew by +5.0%yoy due to the higher sales volume during tax holiday period.

Future prospect. The increasing trade sanctions imposed by the United States of America on Iran as well as the overflooding of inventories in the Saudi Arabiia has caused the slowdown in export sales. However, we believe that the sales to this market will gradual recover in FY20 esspecially in Saudi Arabia where the group will intensify its promotion efforts to clear the excess inventory. In addition, Panasonic is actively seeking to penetrate new markets esspacially in the Asean region such as Vietnam and the Philipines.

Final dividend declared. A final dividend of RM2.11 per ordinary share (vs RM1.33 in FY18) has been proposed by the board of directors for FY19. This brings the cumulative dividend for FY19 to RM2.26 (vs RM2.48 in FY18). This transalted into a dividend payout of about 124.0% (vs FY18: 121.0%).

Source: MIDF Research - 29 May 2019