KEY INVESTMENT HIGHLIGHTS

• 1QFY21 earnings below expectation

• Swung into normalised net loss of RM2.2m during the quarter

• Recovery expected ahead

• Earnings for FY21F/FY22F trimmed by -2.3% and -1.5% respectively

• Maintain NEUTRAL with a revised TP of RM29.19

1QFY21 earnings below expectation. Panasonic Manufacturing Malaysia Bhd (Panasonic) swung into a normalised net loss of RM2.2m. We have excluded foreign exchange loss from our normalised net loss. No dividend was announced during the quarter, which was within expectation.

Swung into normalised net loss of RM2.2m during the quarter, marking the first quarterly losses since 2007. Revenue for the period fell -47.1%yoy to RM154.1m. The much lower revenue can be attributed to the Movement Control Order (MCO) which affected the operations of its plant until May as well as the drop in local sales. As a result of lower sales and operational efficiency that was affected due to the shutdown of its operations, the company’s pretax profit of RM35.1m in 1QFY20 turned into a pretax loss of -RM3.8m. Sales from both home appliances and fan products were only about half of what had been recorded compared to the previous year at 54% and 52% respectively.

Sequentially, revenue declined by -24.7%qoq while net profit fell by -109.6%qoq due to the extended MCO. Its associate recorded net loss of -RM2.9m compared to a profit of RM4.0m in the previous quarter. The lower income coupled with fixed cost resulted in the net loss. On top of that, the company was also negatively affected by unfavorable exchanges rates that resulted in foreign exchange losses during the quarter.

Recovery expected ahead. We expect Panasonic’s performance to recover gradually in the coming quarters due to recovering demand in its products. This comes as operations resume while orders are also picking up again from both the export market as well as locally to replenish the depleted stocks. That said, we believe that consumer sentiment may still be fickle and some segments may see downtrading to cheaper products.

Earnings for FY21F/FY22F trimmed by -2.3% and -1.5% respectively. Due to the lower than expected earnings recorded for the quarter, we trim our earnings estimates for FY21F and FY22F.

Maintain NEUTRAL with a revised TP of RM29.19. Our new TP is derived from an unchanged PER of 14.0x FY22F EPS of 208.5 sen. The assigned PER multiple is the group’s three year average historical PER. Our TP is adjusted in-line with our revision of earnings estimates.

Source: MIDF Research - 24 Aug 2020