Power Root earnings growth likely to sustain
KUALA LUMPUR: Power Root Bhd continues to perform well and is expected to maintain its current growth momentum.
Analysts remain sanguine on the company’s outlook as it derives much of its earnings from exports.
“We believe the encouraging growth momentum will sustain going forward, taking into account the fundamental improvement in its marketing and distribution strength, the effects of price increases and the rising contribution from new products,” RHB Research said in a report on the beverage maker.
The research house pointed out that price hikes in a relatively more aggressive manner by competitors have placed Power Root in a good position to capture a higher market share in an inflationary environment, considering the widening price gaps.
According to RHB Research, Power Root’s first-half results for the financial year 2023 met its forecast and exceeded consensus expectations due to continued robust sales momentum and higher operational efficiencies.
“The margin outlook is benign in anticipation of more cost pass-through and the strong US dollar is earnings accretive.
“We continue to like the stock because of the efficiency-hungry management team, established brand equity and generous dividend payouts,” it said, maintaining a “buy” call on Power Root with a target price (TP) of RM2.60.
Meanwhile, Kenanga Research expects Power Root to have a solid topline boosted by the domestic market and price increases.
“Despite several price hikes, we note its coffee prices are still lower than those of its competitors thanks to its diversified sourcing, which mitigates the effect of high prices globally,” Kenanga Research said.
Kenanga Research maintained its TP of RM2.35 per share for Power Root based on a 19-times forward price-to-earnings ratio (PER) for the fiscal year 2023.
It downgraded the stock to “market perform” from “outperform”.
“At 19 times, we value Power Root at a discount to the average historical forward PER for the food and beverage sector of 22 times, based on its less extensive product range compared to its peers,” said Kenanga Research.