• Maintain NEUTRAL, with new DCF-derived MYR1.68 TP from MYR1.60, 5% downside. Power Root’s FY24 (Mar) results met expectations as sales eased from the high FY23 base. Current valuation appears to be fair at above 5-year mean – pricing in the gradual recovery of export sales and margin upside of domestic business. That said, we opt not to stretch our valuation further given the challenges of volatile commodity markets and potential demand pushback in response to price increases.

• Power Root’s FY24 results were in line with expectations. Net profit of MYR42m (-30%) accounted for 98% and 97% of our and Street’s estimates. Post results, our FY25F-26F earnings were little changed after housekeeping adjustments as we roll out FY27F earnings (+11%). Correspondingly, our TP is revised to MYR1.68 (inclusive of a 10% ESG discount), implying 15.5x FY25F P/E, slightly above the stock’s 5-year mean.

• Results review. YoY, FY24 revenue dipped 9% to MYR419m from the record high in FY23 with the domestic (-9%) and export (-14%) markets contributing to the downfall. The former was dragged down by soft consumer sentiment whilst the latter was affected by internal issues and higher FY23 base. As a result, FY24 operating profit fell 34% to MYR47m, with margin eroding by 4.2ppts to 11.2% on lower volume, higher input costs, and unfavourable sales mix. QoQ, 4QFY24 sales spiked 23% to MYR114m as export sales (+23%) normalised from the low 3QFY24 base which was impacted by inventory adjustments and transition of a new distributor. Correspondingly, 4QFY24 PBT more than doubled QoQ to MYR11.8m. FY24 DPS of 7.1 sen represents a payout ratio of 79% (FY23: 11.75 sen, 84%).

• Outlook. Going forward, management is looking to improve the margin of domestic business by shifting more focus towards the core brands which command better margin. In addition, price adjustments will be implemented in stages to pass on the higher input costs and narrow the price gaps between sales channels. Meanwhile for export markets, we learnt that the new distributor for the Saudi Arabia market is picking up in sales traction whilst the rest of the key markets should also see improvement going forward after the necessary measures were put in place to tackle various efficiency and manpower issues. With that, we forecast a 19% YoY growth in FY25F.

• Risks to our recommendations include sharp hike/drop in input costs and intense/ease in competition levels.

Source: RHB Research - 24 May 2024