Power Root expected to sustain recovery momentum

As producers of staple products, Power Root will be a potential beneficiary of improved consumer spending.

PETALING JAYA: Power Root Bhd is expected to sustain its recovery momentum into next year, supported by favourable raw material costs and moderating advertising and promotion (A&P) expenses.

According to RHB Research, the beverage distributor could record a net profit growth of 17% for the financial year ending March 31, 2020 (FY20).

“This should be contributed mainly by favourable commodity price trends and stabilisation in sales, following the strategy to moderate A&P expenses initiated in FY19,” the brokerage said in its report.

For the first nine months of FY19, Power Root already reported a core net profit growth of 22%. The company is scheduled to release its earning results for fourth-quarter 2019 on May 28.

According to RHB Research, the numbers for the quarter in review would likely be within expectations.

The brokerage projected a core net profit of RM7mil to RM8mil for the fourth quarter, bringing the full-year core net profit to RM30mil to RM31mil. This compared with a core net profit of RM15.7mil for FY18, with fourth-quarter 2018 slipping into a core net loss of RM2.8mil.

However, RHB Research said it was not ruling the possibility of the company booking one-off exceptional items.

RHB Research has maintained its “buy” recommendation on Power Root, with a target price of RM2.02.

“We continue to like the company for its earnings recovery momentum, attractive dividend yields of 5% to 6%, supported by a sturdy balance sheet and the strong brand equity it has accumulated in the local and overseas halal fast-moving consumer goods markets,” RHB Research said.