KUALA LUMPUR (June 10): AmInvestment Bank Research has maintained its "buy" call on Power Root Bhd with a higher fair value (FV) of RM2.69 per share from RM2.55 previously.

AmInvestment Bank Research analyst Nafisah Azmi said in a note today that the research house likes Power Root for its strong earnings recovery from streamlining of costs and expected growth in its export sales as well as scarcity premium for exposure to the instant coffee segment.

In addition, she likes the group due to a decent estimated dividend yield of 5.3%-6.4% from FY21F (financial year 2021 forecasts) to FY23F.

There are several key takeaways from the group's briefing yesterday, noted Nafisah.

These include double capacity for its instant powder products with a new plant in Johor Baru, expecting sales growth to come from Egypt with newly appointed distributors as well as improved online sales moving forward to boost the company's online presence.

Besides, the group also has introduced its new stock keeping units, Alicafe Italian Roast to limit the loss in demand caused by sugar tax and higher value-added tax.

Nafisah noted, the export sales mix of the company grew to 54% in FY20 compared with 51% in FY19 as it was driven largely by improved sales in the Middle East and North Africa (MENA) region.

The analyst mentioned that the group is expecting a weak first quarter of FY21F due to the negative impact of Covid-19 pandemic exacerbated by lockdowns and the Movement Control Order.

"However, the group is expecting recovery in subsequent quarters based on the hindsight from the improving performances in China and Hong Kong," noted Nafisah.

She added, the group expects further savings through cost management and improvement in internal efficiency.

"We raise our earnings forecasts by 5%-6% for FY21F, FY22F and FY23F. This is to account for a higher sales growth assumption from the MENA region.

"We also expect net margins to improve further as more focus is put on driving internal efficiencies," Nafisah noted.

The key risks to the research house's forecasts include a slowdown in export sales, sharp rise in commodity prices and political unrest in its export markets.

At 9.54am, shares in Power Root rose four sen or 1.66%, valuing the group at RM984.41 million. It saw some 109,700 shares traded.