SA2 plant closed for two weeks in Dec 21
? We turn slightly negative post a recent briefing as its SA2 plant was closed for two weeks in Dec 21 due to the floods, leading to loss of production.
? However, we expect the group to ramp up its operation by Mar 22 and record a stronger 2HFY3/22 on recovery in sales and higher selling prices.
? Reiterate Hold with a lower TP of RM31.20 (15x CY23F P/E).
The recent flood incident led to 2-week closure of its SA2 plant
PMM’s management disclosed that the recent flood incident affected its SA2 plant, leading to a two-week (18-31 Dec 21) production halt for its fan products and vacuum cleaners (combined 60% of 1HFY3/22 sales; Figure 2), which is a negative surprise. c.15% of PMM’s suppliers were also hit by the flood, affecting their deliveries to both of PMM’s plants in 1QCY22, leading to lower, albeit still manageable, production levels. Hence, we cut our FY22-23F earnings by 4.1-29.1% while FY24F is unchanged.
Ramping up its operations by Mar 22 through various measures
We take comfort that PMM is undertaking proactive measures to alleviate the shortfall in component parts via i) resourcing from other suppliers, and ii) requesting suppliers’ subcon to support orders. While the group’s current production level for fans (40%) and vacuum cleaners (80%) is not at optimum levels due to the flood, we expect production to ramp up by Mar 22 as the shortage issue eases. PMM’s SA1 plant remains fully operational as it was spared from the flood. We also gather that the financial impact from the flood could be mitigated by insurance.
A better 2HFY3/22, aided by price hikes and cost-savings measures
We are positive that PMM raised selling prices (c.5-10%) for its fan products (50% of 1HFY22 sales) effective Jan 22, which will be followed by other products in Apr 22. The group has also embarked on cost rationalisation initiatives, such as reduction in headcount and marketing expenses. Thus, we believe PMM will post better 2HFY3/22 results, supported by: i) recovery in sales upon reopening of economic activities since 11 Oct 21, ii) plants ramping up to catch up with production delays and fulfilling backlog orders, iii) higher economies of scale, and iv) product price hikes.
Reiterate Hold on appealing dividend yield of 7%; TP cut to RM31.20
Our TP falls to RM31.20 given the earnings cut, still based on 15x CY23F P/E (its 5-year average). However, we retain our Hold call as the stock is currently trading at 13.9x CY23F P/E, c.11% discount to its 5-year mean P/E of 15.6x. Besides, we like PMM for its: i) attractive dividend yields of c.7% for FY23-24F, ii) strong balance sheet (net cash of RM394m (RM6.50 per share) as at end-2QFY22F), and iii) established brand presence and solid market share of consumer electronics in the domestic and overseas markets.