Manufacturing of electrical appliances, perceived as the old economy’s bricks-and-mortar business, may not be many investors’ cup of tea as there is a wide variety of IT-related firms that offer potential exponential growth nowadays.
Nonetheless, Panasonic Manufacturing Malaysia Bhd (PMM) is one to watch. The group delivered three consecutive years of record-breaking earnings, between the financial year ended March 31, 2014 (FY2014) and FY2016, despite cautious consumer spending.
Profit after tax increased from RM75.09 million in FY2013 to RM146.9 million in FY2016. Revenue, meanwhile, rose from RM864.6 million in FY2013 to RM1.086 billion in FY2016.
The impressive financial numbers resulted in PMM receiving The Edge Billion Ringgit Club’s award for highest growth in profit after tax over three years, jointly with Hong Leong Industries Bhd.
Higher export sales of home shower and fan products in Southeast Asia and the Middle East helped to boost the group’s sales. Export sales grew from RM487 million in FY2013 to RM671 million in FY2016. In addition, the stronger US dollar was a tailwind for PMM, given that 60% of its revenue is derived from exports.
Nevertheless, the group’s earnings growth hit a speed hump in FY2017 when higher raw material costs ate into its profitability. It posted a net profit of RM127.12 million, down 13.5% from an all-time high of RM146.9 million the year before. Revenue, however, continued to grow, rising 3.33% to a record high of RM1.12 billion in FY2017.
Thanks to the robust earnings growth, PMM’s shareholders received dividend cheques in the past three financial years.
The group declared a dividend per share of 15 sen in FY2014, a sharp fall from the year before. However, DPS soared to RM1.42 the following year and was RM1.39 in FY2016.
The climb in PMM’s earnings have drawn interest to its shares. The counter leapt to an all-time high of RM39.78 on July 29 last year from RM22 in April 2014. For the three-year period from
April 1, 2014, to March 31, 2017, it gained as much as 83.7% — rather significant for a company with a market capitalisation of over RM2 billion.
PMM is a big cap company with a large cash coffer. Its balance sheet shows zero borrowings.
As at June 30 this year, the company had a cash pile of RM602.43 million or RM9.92 per share. This allows it to participate in hedging activities and to negotiate better interest rates from financial institutions, say analysts.
The cash-rich company has a RM100 million expansion plan over the next two years, which is aimed at raising the manufacturing output of its existing products.
PMM is slated for better results in FY2018, with analysts expecting improved contribution from its vacuum cleaner segment after it takes over the North American market, which was previously under its sister company there.
The rice cooker segment is also expected to break even in FY2018 — PMM said it has successfully adopted a cost-effective manufacturing approach for the loss-making business, which was moved to Malaysia from Thailand in 2015.
Meanwhile, the stronger ringgit this year will impact PMM’s foreign exchange gains but it will mitigate some of the increase in the cost of raw materials, such as aluminium and copper, which had weighted on its FY2017 earnings.
PMM has reportedly raised its selling price by 5% since April to mitigate the higher input costs.
With measures already in place to further raise capacity and maintain margins, the household brand seems to have taken steps to sustain its future earnings growth.