PETALING JAYA: Panasonic Manufacturing Malaysia Bhd’s (PMM) margins are likely to come under pressure in the second quarter of the year on the back of high raw material and operating costs due to stringent standard operating procedures (SOPs).
MIDF Research said prices of raw material such as plastic resins, copper and aluminium rose by 4% to 13% compared to the preceding quarter.
“However, we are not overly concerned as we opine that some of these can be mitigated by PMM’s ongoing cost-optimisation activities. On top of that, its associate, which has returned to profitability, is expected to record sustainable profits in the future, ” the research house added.
In the long run, it noted that PMM’s profitability could improve on the back of additional capacity from the new factory at SA2, which would reduce the company’s reliance on external contractors by close to 50%.
The new factory is expected to start commercial production in October this year.
During the second round of the movement control order (MCO), CGS-CIMB Research said that domestic sales were expected to be weak from falling retail footfall, adding that it would be offset by a recovery in export demand.
“Domestic demand is likely to be weaker due to the lower retail footfall, although electrical stores are allowed to operate during the current MCO period.
“We think this will be offset by export sales, especially in fast-growing markets in South-East Asia, which already showed recovery momentum in the group’s second quarter ended Sept 30 (Q2), ” it added.
The group posted a 90.8% quarter-on-quarter recovery in sales, contributing to a strong return to profitability of RM43.8mil in Q2, supported by restocking activities upon resumption of plant operations in May 2020.
The research house is maintaining a hold call on PMM with an unchanged target price of RM33 based on a price-to-earnings (P/E) ratio of 17 times for the forecast calender year 2022, a 20% premium over the P/E of the consumer discretionary sector to reflect its strong balance sheet and dividend payout ability compared to other consumer discretionary stocks.
CGS-CIMB Research reckoned that the group’s share price would likely be supported by its attractive dividend yields of 7.2% for the financial year 2021 (FY21)-FY23 forecasts.
However, as Covid-19 cases remain high in the country, it believes that the key risk to the group is the resurgence of cases among its workers which could cause production halts.
Recall that PMM had a one-week disruption in its operations due to a surge in positive Covid-19 cases at its manufacturing facilities.
PMM recorded net losses in Q1 due to halted operations during the first MCO implementation. Moving forward, MIDF Research said that the group plans to focus more on selling its main products which are fans, home showers and vacuum cleaners to their respective stronghold markets.
“For instance, it plans to export more fans to Vietnam, as the economy is unscathed from the pandemic. This could cushion any potential shortfall from other markets such as Thailand, ” it said.
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