Panasonic’s FY17 earnings marred by home appliance segment
KUCHING: Earnings of Panasonic Manufacturing Malaysia Bhd’s (Panasonic Malaysia) for financial year 2017 (FY17) have been marred by the underperformance of its home appliance segment as products such as its rice cookers struggle to reach breakeven level.
According to MIDF Amanah Investment Bank Bhd’s research arm (MIDF Research), the reason for this struggle was due to a lower profit before tax margins as operating costs increased at a faster pace which resulted in FY17 performance coming below expectations.
The higher operating costs stem from the recent transfer of manufacturing activities from Thailand to Malaysia which has many of the group’s home appliance products to struggle to reach breakeven levels or turn a profit.
MIDF Research said this was further exacerbated by the vacuum cleaner and iron segments which recorded a lower number of sales as its main market – the Middle East, which accounts for 80 per cent of total sales – has not fully recovered in FY16.
Despite the lacklustre results, it’s not all doom and gloom as the research arm foresees an improvement to Panasonic Malaysia’s FY18 financial performance.
“Both its rice cooker and vacuum cleaner segments are slated to see some recovery in FY18 which will allow them to recoup the losses incurred in FY17,” it added.
“In contrast, sales from the fans segment might slow down further this year due to lower project sales from the government for the installation of fans.”
Given that 60 per cent of the group’s sales are to the overseas market, the projected stronger ringgit this year will reduce the foreign exchange (forex) gain for the group, it added.
“While a stronger ringgit might lower the cost of purchasing raw materials, recent rises in prices of aluminium and cooper will offset this,” it said. “Hence, we remain neutral on the company’s future prospects.”
With that said, MIDF Research maintained its ‘neutral’ rating on the stock with an unchanged target price of RM32.40 per share.
Looking at the group’s current financial health and expansion plans, the group is currently cash hoarding with 60 per cent of its total assets being in cash in order to fund its expansion project where RM100 million will be needed in the next two years.
The practice is also to allow the group to participate in hedging activities as well as negotiating better interest rates from financial institutions.
“Therefore, despite the cash pile build-up, the company’s dividend pay-out ratio will still be fixed at 60 per cent profit after tax,” guided the research arm.