04 February 2013 | Visit Note
Upgrade to BUY
Panasonic Manufacturing Malaysia Berhad
Revised Target Price (TP): RM22.62
(Previous TP: RM21.41)
It boils down to innovation
INVESTMENT HIGHLIGHTS
•
New products already in the pipeline.
RETURN STATS
•
More manufacturing and sales transfer from China to Malaysia
expected in the near future.
Price (31 Jan 2013)
RM20.20
•
Growth to come mainly from exports.
Target Price
RM22.62
•
Generous dividend payouts expected to be maintained.
Expected Share Price
Return
12.0%
•
Upgrade to BUY with a revised TP of RM22.62.
Expected Dividend Yield
5.8%
Expected Total Return
17.8%
We visited Panasonic Manufacturing Malaysia Bhd (PMMA) recently.
The key takeaways are:
New products to be launched every year. PMMA has been consistent
in launching new and better products to the market for the last few years,
and we expect this trend to be continued moving forward. Among the
new products launched in FY2012 were new models of home showers
and vacuum cleaners, while this year PMMA has launched the meat
grinder product into the market.
More products to be transferred to PMMA. Other than launching new
models and products, we have seen a trend of transferring the
manufacturing and sales of certain products from other countries to
PMMA. For example, in FY12, the company transferred the
manufacturing and sales of ceiling fan for the global markets from China
to Malaysia. In this financial year, the transfer of manufacturing and
sales of meat grinders from Japan to Malaysia was commenced. The
transfers were made due to strategic reasons, and we believe with the
current political tension between Japan and China, we expect to see
more products to follow the same route.
R&D key to innovation. The main reason PMMA has been able to
continuously churn out market leading products is because it strongly
emphasizes on the importance of innovation, as proven by its big and
very capable research and development (R&D) team. This team
continuously undertakes the product modification and improvement
activities to make them suitable for the local market and enhance the
features and quality of those products. With product life cycle becoming
shorter, currently averaging two to three years, continuous innovation is
utmost important for PMMA to maintain its leadership position in the
consumer electrical household goods market.
Some of new products still searching for market recognition.
Although PMMA has been consistently launching new products into the
domestic market, there are some products that have not achieved the
acceptance that were expected. For example, the bidet, which was
launched not long ago, has not seen the sales growth expected of it.
This is partly due to the domestic culture that is not used to it, and partly
due to the relatively high cost associated with installing the product.
Nonetheless, we believe as people get familiarized with these products,
they will eventually gain the recognition they deserve.
STOCK INFO
KLCI
1,627.55
Bursa / Bloomberg
3719 / PMM MK
Board / Sector
Main/ Consumer
Products
Syariah Compliant
Yes
Issued shares (mil)
60.7
Par Value (RM)
1.00
Market cap. (RM’m)
Price over NA
1,227.1
1.93x
52-wk price Range
RM19.74–
RM23.80
Beta (against KLCI)
0.73
3-mth Avg Daily Vol
0.01M
3-mth Avg Daily Value
RM0.18m
Major Shareholders
Panasonic Mgmt M’sia
47.45%
Aberdeen Asset Mgmt
13.44%
Mitsubishi UFJ Financial
Group
8.84%
EPF
7.55%
KWAP
5.07%
KINDLY REFER TO THE LAST PAGE OF THIS PUBLICATION FOR IMPORTANT DISCLOSURES
MIDF EQUITY BEAT
Monday, 04 February 2013
INVESTMENT STATISTICS
FYE Mar
FY11
FY12
FY13F
FY14F
Revenue (RM m)
761.4
825.8
883.6
954.3
Gross Profit (RM m)
148.2
136.3
150.2
167.0
EBIT (RM m)
93.4
78.7
91.0
100.2
Pretax Profit (RM m)
101.8
85.2
97.2
109.7
Net Profit (RM m)
82.7
66.4
75.1
85.9
EPS (sen)
136.0
109.0
123.6
141.4
EPS growth (%)
27.5
-19.9
13.4
14.4
PER(x)
14.9
18.5
16.3
14.3
Net Dividend (sen)
108.8
90.0
102.0
116.6
5.4
4.5
5.0
5.8
Net Dividend Yield (%)
Source: Company, Forecasts by MIDFR
Export markets the main growth contributor. Although the products marketed in the domestic market generally
generate higher profitability, due to the pretty saturated domestic market, we expect the growth potential lies mostly in
the export markets, namely the Middle East and South East Asian countries. This has been proven by the PMMA’s most
recently launched new product, the meat grinder, which sales are almost 100% concentrated on the export markets.
Currently, only 43% of PMMA’s products are for domestic market consumption.
Company not totally insulated from parent company’s woes. As part of the global Panasonic group, there have
been some concerns in the market that the financial woes beleaguering its parent company in Japan are going to affect
PMMA. However, we are of the opinion that this concern has been exaggerated, as the PMMA currently has a very
sound operation and solid financial strength. Nonetheless, as the parent company holds 47.45% of its outstanding
shares, we believe to certain extent PMMA is not totally insulated from its parent company’s problems in Japan,
particularly in the decision making process.
CAPEX to be maintained between RM20m and RM40m. Over the past three years, the company has averaged
annual capital expenditure spending of between RM20m and RM40m, and we have been assured that this level will be
maintained for the next two years. This year, the company is looking to increase its current production capacity and
continue to undertake new products development. There is still adequate space within the current plant for the company
to expand its production facility. Furthermore, even if the company were to build a new plant, there is still ample land
within the current vicinity for the company to erect a new plant, without having to fork out cash for land acquisition.
Impact from minimum wage policy to be minimal. As labor cost typically accounts for 5%-10% of the total production
cost, we expect the implementation minimum wage policy will to certain extent have an impact to the profitability of the
company. This is more so due to the fact that 60% of PMMA’s workforce are made up by foreign workers, and the
increment in cost will be bigger especially for outsourced staff. Nonetheless, we expect PMMA can negotiate a fair deal
with its associate company, Panasonic Malaysia Sdn Bhd, who acts as the sales company for all Panasonic products in
Malaysia, in order to protect its profitability. Furthermore, under the worst case scenario, due to its sizeable market
share, we believe PMMA will be able to pass through to any incremental cost to its customers.
Attractive dividend payout to be maintained for now. PMMA has been maintaining very generous annual dividend
payout payments, with a payout ratio exceeding 100% over the last five years. As at 31 Mar 2012, the company has
sufficient Section 108 tax credits and tax exempt income to pay its retained earnings as franked and exempt dividends.
However, with the Section 108 tax credits going to expire on 31 Dec 2013, there are concerns whether the company
would maintain its dividend payouts at the current level. Analyzing the company’s current cash position and cash flow,
we remained convinced that the company will be more than capable to maintain its current payout ratio for the
foreseeable future.
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MIDF EQUITY BEAT
Monday, 04 February 2013
2HFY13 to churn out better results. PMMA’s 1HFY13yoy revenue and earnings dropped slightly, but the main factors
behind the drop were because the company terminated its rice cooker production to Japan, which cost them RM11m
annually, plus the abnormally higher sales generated in FY2012 from the fan segment due to the rebound post the
tsunami disaster in Japan in March 2011. As such, provided no unforeseen circumstances, we expect the performance
of PMMA in 2HFY12 to be better than the same period last year,
Better outlook for FY14. We forecast FY14 be a better year for the company due to a couple of factors. On one hand,
there are challenging inherent external and internal factors, namely the ongoing Eurozone crisis, the political instability
in the Middle East, certain trade sanctions faced in the Iranian market that are hampering export growth, plus not to
forget the uncertainties in the domestic market due to the upcoming general election. However, on the other hand, there
are plenty of positive factors to be bullish about, namely the growing domestic economy, the weakening RM and the
decline in raw material prices. As the raw materials make up 70% of the production cost, the drop in price for these
items (steel, aluminum, copper, plastic raisin etc.) will have a substantial impact on the profitability of the company.
Upgrade to BUY with a revised TP of RM22.62. Due to the more favorable operating environment anticipated, we
have tweaked up our earnings forecast for the company for FY13 and FY14. We roll over our valuation to FY14, with a
higher target price of RM22.62 per share, derived from 16 times FY14F EPS multiple, based on the stock’s 5-year
historical price earnings average. As such, we are upgrading our call to a BUY as we believe the stock offers substantial
price appreciation potential and a decent dividend yield. In our opinion, the recent selldown of the stock due to concerns
regarding the company’s parent company in Japan was overly done, and the current price offers the opportunity for
long-term investors to accumulate.
Chart 1: Revenue composition
Source: Company, Forecasts by MIDFR
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MIDF EQUITY BEAT
Monday, 04 February 2013
Revenue and PBT Breakdown
Cumulative
Revenue breakdown (RM m)
1HFY13
1HFY12
%YoY
Home Appliance Products
214.8
216.6
-0.8%
Fan Products and others
220.2
228.1
-3.5%
Total
435.0
444.7
-2.2%
Cumulative
PBT breakdown (RM m)
1HFY13
1HFY12
%YoY
Home Appliance Products
23.8
25.4
-6.2%
Fan Products and others
22.4
17.7
26.8%
Total
46.2
43.0
7.3%
Cumulative
PBT margin
1HFY13
1HFY12
%-point
Home Appliance Products
11.1%
11.7%
(0.64)
Fan Products and others
10.2%
7.7%
2.43
Total
10.6%
9.7%
0.94
Source: Company, Forecasts by MIDFR
DAILY PRICE CHART
Zulkifli Hamzah
Azman Hussin
azman@midf.com.my
03-2772 1663
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MIDF EQUITY BEAT
Monday, 04 February 2013
MIDF RESEARCH is part of MIDF Amanah Investment Bank Berhad (23878 - X).
(Bank Pelaburan)
(A Participating Organisation of Bursa Malaysia Securities Berhad)
DISCLOSURES AND DISCLAIMER
This report has been prepared by MIDF AMANAH INVESTMENT BANK BERHAD (23878-X). It is for
distribution only under such circumstances as may be permitted by applicable law.
Readers should be fully aware that this report is for information purposes only. The opinions contained
in this report are based on information obtained or derived from sources that we believe are reliable.
MIDF AMANAH INVESTMENT BANK BERHAD makes no representation or warranty, expressed or
implied, as to the accuracy, completeness or reliability of the information contained therein and it should
not be relied upon as such.
This report is not, and should not be construed as, an offer to buy or sell any securities or other financial
instruments. The analysis contained herein is based on numerous assumptions. Different assumptions
could result in materially different results. All opinions and estimates are subject to change without
notice. The research analysts will initiate, update and cease coverage solely at the discretion of MIDF
AMANAH INVESTMENT BANK BERHAD.
The directors, employees and representatives of MIDF AMANAH INVESTMENT BANK BERHAD may
have interest in any of the securities mentioned and may benefit from the information herein. Members
of the MIDF Group and their affiliates may provide services to any company and affiliates of such
companies whose securities are mentioned herein This document may not be reproduced, distributed or
published in any form or for any purpose.
MIDF AMANAH INVESTMENT BANK : GUIDE TO RECOMMENDATIONS
STOCK RECOMMENDATIONS
BUY
TRADING BUY
NEUTRAL
SELL
TRADING SELL
Total return is expected to be >15% over the next 12 months.
Stock price is expected to rise by >15% within 3-months after a Trading Buy rating has been
assigned due to positive newsflow.
Total return is expected to be between -15% and +15% over the next 12 months.
Total return is expected to be <15% over the next 12 months.
Stock price is expected to fall by >15% within 3-months after a Trading Sell rating has been
assigned due to negative newsflow.
SECTOR RECOMMENDATIONS
POSITIVE
The sector is expected to outperform the overall market over the next 12 months.
NEUTRAL
The sector is to perform in line with the overall market over the next 12 months.
NEGATIVE
The sector is expected to underperform the overall market over the next 12 months.
5