CGS-CIMB Research said it expects Power Root to post stronger results quarter-on-quarter in the fourth quarter of FY23.
PETALING JAYA: Power Root Bhd
can expect stronger financial results in the fourth quarter of financial year 2023 (4Q23), driven by major festive sales and ongoing price hikes.
There is also recovery in sales demand from its export markets such as the Middle East besides margin improvement expectations sequentially on price hikes and greater economies of scale due to higher utilisation.
CGS-CIMB Research said it expects Power Root to post stronger results quarter-on-quarter in the fourth quarter of FY23.
It also reiterated its “add’’ call on Power Root due to its robust earnings growth profile with three-year earnings per share compounded annual growth rate of 29.1% (FY22 to FY25) and attractive dividend yield of 5%.
The downside risk cited include lower-than-expected sales. The re-rating catalysts are stronger-than-expected export sales and margin expansion, CGS-CIMB Research said.
The research house also views the recent memorandum of understanding signing with Saudi Arabian distributor Abbar & Sons Food Co Ltd (Abbar Food) positively for Power Root’s export sales.
This is to distribute its Alicafe and Alitea premix beverage products (both products combined accounted for 57% of Power Root’s total FY22 sales) in Saudi Arabia.
“By leveraging Abbar Food’s extensive distribution network sales touchpoints, including 1,000 modern trade partners in Saudi Arabia.
“We believe this would enable Power Root to further penetrate the Saudi Arabia market (one of the company’s top three export markets) and bodes well for its export sales to the Middle East,” said CGS-CIMBResearch.
The research house estimates that every 1% shift in revenue would increase its FY24 to FY25 earnings estimates by about 3% to 4%.The Middle East market has been a major revenue contributor to Power Root, accounting for 32%, 28.4% and 30.5% of total sales in FY21, FY22 and nine months of FY23, respectively.
While the majority of sales are still derived from its Malaysian operations (accounting for 53.4%, 58.7% and 58.6% of total sales in FY21, FY22 and nine months of FY23, respectively.
CGS-CIMB Research sees increasing contribution from its export sales going forward, particularly from the Middle East market.
This could be driven by the potential return of tourist arrivals and its increasing brand profile in the region, said the research house.
