Worst is over for Power Root, turnaround likely in FY23
KUCHING: Power Root Bhd (Power Root) will likely see a turnaround in the financial year 2023 (FY23) after two years of lacklustre earnings, analysts observed.
“After two years of lacklustre earnings, we believe the worst is over for Power Root and foresee a turnaround in FY23F.
“Management is targeting export sales of up to RM150 million (9MFY22: RM98 million), having observed signs of recovery in key Middle East markets on post-reopening demand normalisation and gradual adaptation to the higher taxes by the consumers.
“On the other hand, 9MFY22 local sales grew 28 per cent y-oy RM152 million and we expect the momentum to sustain going forward, taking into account the effective execution of marketing strategies and contributions from new products whilst we sense that competition in the instant coffee market has eased,” RHB Investment Bank Bhd’s research team (RHB Investment) said in a report.
As for the the hikes in commodity prices, the research team noted that the increase have translated into higher production costs and crimped margins for Power Root.
“Having not passed on the costs earlier due to weak market conditions, Power Root has, in stages, adjusted its average selling prices (ASPs) for local and export markets since early 2022.
“The effect should be reflected from FY23F and we forecast GPM to recover to circa 44 per cent from 42 per cent in FY21.
“In addition, Power Root has continued to enhance its operational efficiency by reviewing and modernising its workflow process on both marketing and manufacturing fronts.
“Meanwhile, more brand building activities should resume following the broad market reopening, but marketing expenses should remain ROIfocused at circa 12 per cent of revenue, rising in tandem with its topline,” it said.
All in, RHB Investment upgraded its call on the stock to ‘buy’ from ‘neutral’.