Record earnings lift Power Root to new peak

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KUALA LUMPUR (May 29): Shares in Power Root Bhd surged to a new peak after delivering a stellar set of earnings figures with a record-high annual profit.

The stock opened at RM2.36, higher than its previous day’s closing of RM2.24. As at 10.15am, the counter was trading at RM2.50, up 26 sen or 11.6%, making it the fifth top gainer, in terms of percentage change, across Bursa.

Trading volume was not that large at 1.1 million shares, but it was more than double its 200-day average trading volume of 486,831.

Four analysts covering Power Root have all been upbeat about the company and having it on the buying list. The target price range is between RM2.35 and RM2.96.

RHB Research analyst Soong Wei Siang — with the highest target price among all — said in a research note today that his positive view on the stock is premised on sustainable earnings growth underpinned by robust sales growth on the back of new product launches and market penetration.

On top of that, Soong believes that Power Root's margins should stay healthy, supported by cost-optimisation initiatives and effective marketing investments. The cost-management measures range from inventory management to sales and distribution network, as well as advertising and promotional investments.

“Besides that, the company has also identified top-line growth opportunities by penetrating further into export markets. This, together with favourable commodity prices, should propel earnings growth,” he said.

Correspondingly, Soong has raised his target price for Power Root to RM2.96 from RM2.80 previously, implying a forward price-earnings ratio of 21 times. The counter remains as his consumer non-cyclical sector top pick.

In addition, he opines the market’s pursuit of quality shariah-compliant consumer stocks that offer solid earnings growth and decent dividend yields should continue to drive interest in Power Root shares.

Power Root’s share price has rebounded 50% from its low of RM1.66 in mid-March, pushing its market capitalisation to slightly above RM1 billion.

The company announced that it posted a record-high annual net profit of RM51.38 million for its financial year ended March 31, 2020 (FY20) — up 83.5% from RM28 million for FY19 yesterday.

In a stock exchange filing yesterday, the company said better sales and stronger US dollar had contributed to strong quarterly earnings.

Going forward, it said it is adapting sales strategy for different consumer behaviours in a post-Movement Control Order world, by increasing focus on reaching potential customers online.

“Given that coffee typically enjoys inelastic demand, we are also maintaining new product launch plans for the year,” it said.