KUALA LUMPUR (Aug 2): Hong Leong Investment Bank (HLIB) Research said a confluence of headwinds from muted sales, rising raw materials and higher operating expenses are to persist for the remainder of the year, and pose a challenge to Panasonic Manufacturing Malaysia Bhd's earnings moving forward.
In a note on Tuesday (Aug 2), the research firm said Panasonic expects an about 6% to 7% revenue impact from the termination of its rice cooker and kitchen appliances products.
“We gathered that there are also restructuring costs amounting to RM12.2 million for the termination of rice cooker products, which have been suffering losses for the past years, attributable to high raw material costs, which eroded profit margins.
“Additionally, some kitchen appliance products will also be terminated in the financial year ending March 31, 2023 (FY23), on the back of the realignment of global production for the Panasonic group,” said HLIB.
According to HLIB, Panasonic was able to resume full operation from March 2022, after the flood incident in the SA2 plant located in Seksyen 23, Shah Alam in December. Despite that, the group had incurred substantial losses from damaged inventories and facilities, coupled with the absence of sales from the operation disruption in FY22.
“Total losses amounted to approximately RM24.7 million, and we understand that the insurance claimed so far only covers 49% of the total loss, with [the] remaining amount still under review. Currently, the utilisation rate of [the] fan segment is running at 85%, and vacuum cleaners at 90%,” said the research firm.
In addition, there will be further price hikes for Panasonic products in the second half of 2022, as a step to mitigate rising costs, noted HLIB.
The group has increased selling prices by 5% to 10% for certain models to mitigate the impact, noting that its main raw materials, which include copper, aluminium and steel, have shown an upward trend of 16% to 84% in prices.
“Despite that, we opine that the group will only be able to partially pass on the costs to consumers, and would still have to face eroding margins. Additionally, the group is also looking further to automate its production in light of rising labour costs due to the new minimum wage policy and a labour supply crunch,” added HLIB.
Panasonic recorded a core profit after tax of RM15.2 million for the fourth quarter ended March 31, 2022, bringing the FY22 sum to RM50.5 million. The disappointment was no thanks to lower-than-expected sales from the operation disruption, and margin compression from elevated raw material costs.
Nonetheless, HLIB reiterated its "sell" call on the stock, with an unchanged target price of RM22.33.
Panasonic shares had risen two sen or 0.08% to RM26.40 at the time of writing on Tuesday, translating into a market capitalisation of about RM1.6 billion for the company.