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Friday, August 24, 2018

Panasonic Manufacturing Malaysia - Electrical Earnings as Expected

Author: HLInvest | Publish date: Fri, 24 Aug 2018, 10:47 AM

Reported 1QFY19 core PAT of RM36.5m (+53.8% QoQ, -5.2% YoY) was within ours and consensus expectations. Going forward, we expect the group to increase production capacity and benefit from tax deductions associated with R&D expenses. We keep our forecasts, BUY call and TP of RM43.50.

In line. Reported 1QFY19 core PAT of RM36.5m was broadly within ours, and consensus expectations, accounting for 27.0% and 24.7% of ours and consensus estimates respectively. Note that 1Q, 2Q & 3Q are usually marginally stronger than 4Q.

Dividend. None Declared.

QoQ. Revenue rose by 10.4% from RM 276.7m to RM305.6m, predominantly driven by significantly stronger domestic sales (+66.2%) due to the zerorisation of GST and seasonality. Higher domestic sales were more than enough to offset the lower sales to the Middle East (-22.7%). Core PAT was higher by 53.8% as a result of better sales, after adjusting for derivative losses of RM11.4m.

YoY. Core PAT decreased by 5.2% to RM36.5m in tandem with revenue decline of 6.8%. Lower sales were attributed to (i) poorer sales to the Middle East (-8.1%), (ii) stronger ringgit in 1QFY19 vs 1QFY18 resulting in lower export revenue. Export sales accounted for only 53.6% of Panasonic’s sales in 1QFY19 vs 57.0% in 1QFY18.

Prospects. The company expects to increase their Shah Alam plant production area by approximately 18%. Currently, PMM guides that the factory is already working at close to maximum capacity. Additionally, the company recently undertook a re organisation of the Product Development Engineering Department which allows the company to claim for double tax deduction on R&D expenses, estimated to result in annual tax savings of RM8.5m. We expect 2QFY19 earnings to show strong domestic growth from the sales tax holiday from June and August this year.

Forecast. Unchanged.

Maintain BUY, TP: RM43.50. Maintain our TP of RM43.50 based on 17x of FY20 EPS of 256 sen. Maintain BUY call. We like PMM for its strong corporate governance and healthy net cash position of RM661m (or RM10.90 per share).

Source: Hong Leong Investment Bank Research - 24 Aug 2018

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