KUALA LUMPUR: While Power Root Bhd could face a weak 1Q on lower domestic contribution and export sales, a gradual recovery could take place from 2Q onwards on the back of recovering MENA markets, says Kenanga research.
According to the research house, the MENA markets are expected to recover in the footsteps of other export markets such as Hong Kong and China.
"Furthermore, we believe the group’s newly launched product in the MENA region - “Ali Café Italian Roast” which is priced at a more affordable pre-sugar tax level, would be able to help cushion any loss in demand due to the fully-passed on sugar tax," it said.
In the new financial year, Power Root plans to expand its brand presence through different sub-segments via the introduction of more innovative offerings.
In line with this, the group is planning the expansion of a new factory at its current Johor facility, which would double production capacity, with an estimated capacity of about RM35mil and a completion timeline of about two years.
Kenanga expects margins to remain stable despite the new product launches given the more favourable raw material costs and greater operational efficiencies from the group's rationalisation exercise.
However, despite growing more optimistic over its post-lockdown recovery, Kenanga research believes the market may have already priced in the expected positives for Power Root Bhd.
The research house downgraded Power Root to "market perform" with a higher target price of RM2.45, after lifting its FY21 and FY22 earnings forecasts by 2% and 3% respectively.
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