Potential seen in Power Root expansion plans
KUCHING: There is potential seen by analysts in stocks of Power Root Bhd ( Power Root), driven by the group’s growing export segment and expansion plans on the Middle East and North Africa market.
The research arm of Kenanga Investment Bank Bhd ( Kenanga Research) in an initiation coverage opined that with the impressive organic sales growth generated by exports, the group will continue to see an expansion from the segment, spearheaded by the Middle East and North Africa ( MENA) market, which accounts for circa 78 per cent of export sales.
Kenanga Research based this on its higher population base as well as higher standard of living to boost a greater propensity for consumption.
“In addition, the group’s leading market position in the MENA market may suggest that brand awareness is well rooted with consumers and hence, should experience sustainable demand,” the research arm said.
According to Kenanga Research, the tentative completion date of Power Root’s new UAE plant was
In addition, the group’s leading market position in the MENA market may suggest that brand awareness is well rooted with consumers and hence, should experience sustainable demand.
postponed from March 2017 to 2019, following management’s decision to defer the commencement of construction of the plant.
“Given that construction costs will be incurred in US dollar, the prevailing strength in US dollar rates may lead to the loss of its net beneficiary position,” the research arm said.
“While the delay may defer any aggressive growth strategies in the MENA region, we are hopeful that its market share would continue to expand from its resilient demand.”
Fur thermore, Kenanga Research believed the group may be better positioned from securing a wider market share before commissioning the new facility as a larger revenue stream could minimise risks of being overran by large-than- expected overheads.
While the Johor plant is running at a utilisation rate of circa 85 per cent, the research arm believed the group is able to accommodate future demand growth by ramping up production days.
On another note, Kenanga Research highl ighted that following the normalisation of commodity prices ( primarily coffee and sugar, the group is likely to face pressures in their profit margins in the short term due to the lack of hedging policies.
“On the other hand, assuming input costs remain constant, the group will benefit from stronger US dollar exchange rates given its sizeable exposure to exports.
“Exports account for circa 40 per cent to 45 per cent of total sales, of which circa 90 per cent are transacted in US dollar rates,” the research arm said.
Kenanga Research
Looking forward, Kenanga Research est imated core profit after tax and minority interest ( PATAMI) earnings for financial year 2017 (FY17) to see a slight decline at RM48.9 million amidst higher production cost pressures.
However, the research arm expected a recovery in FY18 to RM52.6 million, arising from higher export sales.