Growth momentum expected to be sustained for Power Root

TheEdge Mon, May 13, 2019 09:54am - 4 years View Original


Power Root Bhd
(May 10, RM1.30)
Maintain buy with a target price of RM2.02:
We expect Power Root Bhd to report fourth quarter of financial year 2019 (4QFY19) core net profit (CNP) within expectations, but headline numbers could be masked by one-off provisions. We continue to like the company for its earnings recovery momentum, attractive dividend yields of 5% to 6% supported by a sturdy balance sheet, and the strong brand equity it has accumulated in local and overseas halal fast-moving consumer goods markets, thanks to quality products and effective marketing initiatives.

Power Root is scheduled to report its 4QFY19 results on May 28. We expect its 4QFY19 CNP to come in within both our and consensus expectations at RM7 million to RM8 million (4QFY18: core net loss of RM2.8 million), bringing its FY19 CNP to RM30 million to RM31 million (FY17: RM15.7 million). However, considering that the group had several year-end write-down/impairments totalling over RM6 million in 4QFY18, we are not ruling out the possibility of one-off exceptional items being booked in 4QFY19. We expect a final dividend per share to be declared for 4QFY19, taking the total payout for FY19 to seven sen (FY18: 8.5 sen), representing a payout ratio of 90%.

The group reported a CNP growth of 22% for the first nine months of FY19, thanks to favourable raw material costs and moderating advertising and promotional (A&P) expenses. Looking further ahead, we forecast Power Root to sustain growth momentum and record a net profit growth of 17% for FY20. This should be driven mainly by favourable commodity price trends and stabilisation in sales following the strategy to moderate A&P expenses initiated in FY19. Power Root’s balance sheet is likely to remain robust, considering the healthy cash flow generation and minimal capital expenditure needs. As at end-3QFY19, the group’s net cash was RM26 million. This should allow it to maintain a high dividend payout ratio going forward. — RHB Research Institute, May 10

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