Power Root seeks stronger footing in the Middle East

  • Business
  • Saturday, 19 Dec 2015

Doing well: Power Root’s Alicafe outlet in Kelana Jaya. The company’s products have been performing well in the Middle East and North African region.

A PRESENTLY subdued outlook of the resource-rich Middle Eastern region is not hindering some companies such as Power Root Bhd from bucking the trend there.

The company’s products including its flavoured coffee drinks have been performing well in the Middle East and North African (Mena) region despite an overall subdued outlook for the countries there due to the current oil price scenario.

Power Root is bullish and will be adding on to its gains in the region, which it first ventured into 10 years ago.

A company spokesperson tells StarBizWeek its growth prospects can be sustained in the Mena region and after the years of experience exporting there, it has finally decided that it will establish a stronger brick-and-mortar asset presence.

Power Root has started to build its first production plant in that part of the world with an initial capacity of 100,000 cartons per month.

It will be located in the United Arab Emirates, and this is the second facility it will own globally after the one in Johor.

“The earthworks have started for this plant and will cost approximately US$14mil-US$15mil (RM60.66mil-RM65mil). A term loan has been secured to finance these costs,” he says.

“We expect the plant to be completed and come online by the end of the financial year 2017 ended March 31,” he adds. The plant will be 90% externally financed.

Looking back, the decision to enter the region was indeed a right one by its management and the Alicafe products have taken off well.

The decision to establish a stronger presence in the Mena region by Power Root in spite of the present circumstances indicates the salient long-term growth prospects for the region.

For a consumer-based company to continue to invest there shows that there could be upsides in the longer term for consumers in that part of the world.

“The decision to establish a stronger presence there will help Power Root save on freight and related costs in the long run and allows them to be closer to their customer’s wants and tastes. It’s a long-term gain,” a consumer analyst says.

“The Mena region and coffee remains the main contributor in export markets. Products under the Alicafe brand is the main driver for our sales. Some of the reasons for the good response is because the taste bodes well with the consumers there, with our concerted marketing and promotional activities to market the products,” the spokesperson says.

Exports to its topline have continued to see a good pace of growth and last stood at 37.7% of its year-to-date Sept 30 revenue of RM192.92mil.

An indication that it is seeing growing demand for its products overseas, exports have grown consistently since it went public.

The segment only constituted 5.5% of revenue when the company first went public in 2007.

Moving forward, Power Root will launch more new products and is planning to launch several drinks in the year ahead.

The company recently decided to sell its land and building in Indonesia for 13 billion rupiah (RM4mil), given that the shop-office situated there is underutilised.

“The disposal will allow us to optimise the reallocation of capital more efficiently within the company so we can maximise our returns on investments. We do not plan to declare any special dividends as the gains are not substantial,” he says.

The progressive success of its ventures both in export and local markets have seen its share price rise and is now hovering near its all-time high since its listing almost 10 years ago.

From being categorised as a small-capitalised company just a year ago, it is presently trading at a price-to-earnings ratio of 13.3 times without any forward forecasts.

Power Root has today graduated to being a medium-capitalised company with a market capitalisation of RM773.6mil, getting closer to its RM1bil market capitalisation mark.

Sector analysts believe that all these corporate moves could eventually see the company expanding and surpassing the RM1bil target in the medium term.

In the bigger picture, growth dynamics have been favouring Power Root and the company has been growing at an average of 10.35% on the topline for the past five years.

It has also been able to optimise its returns to shareholders in recent years as well with bottom line growing 10.39% in the past three years.

The company appears to have been able to carve a profitable niche, positioning itself well against the competition despite operating in the competitive consumer foods segment.

Bucking the sombre trend in the Middle East proves this and it could eventually lead to an increased exposure to the region and after that, returns to shareholders in the medium to longer term.

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Business , Power Root , MENA , coffee


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