KUALA LUMPUR (July 2): Hong Leong Investment Bank (HLIB) has maintained its “hold” rating on Panasonic Manufacturing Malaysia Bhd (KL:PANAMY) at RM22.06 with an unchanged target price of RM20.02, based on the 13 time price-earnings (PE) multiple on financial year 2025 (FY2025) earnings.

In a note on Tuesday, the research house said that despite the improvement in profitability in FY2024, it expects "muted growth" with respect to Panasonic’s suboptimal plant utilisation due to the termination of kitchen appliances.

“On a brighter note, we reckon that Panasonic could potentially benefit from higher discretionary spending from the EPF (Employees Provident Fund) Account 3 and civil servants pay hike. Apart from that, moderation of raw material prices would also help in cushioning the bottom line impact from lower sales,” it stated.

HLIB said Panasonic’s discontinuation of kitchen appliances in the second half of calendar year 2022 (2HCY2022) was followed by a RM75.9 million reduction in revenue in FY2024. It was reported that this segment contributed an average of 9% to the group’s revenue in 2HCY2022 and 13% in FY2024.

It said that to replace these products, the company introduced a new water-related products line. “Panasonic is the first to venture into water-oxidation products in the region amongst other Indonesian manufacturers.”

However, HLIB expects the company’s production plants to be underutilised for the next couple of years as production is still in its infancy stage with only 30% of the SA2 plant being utilised.

The research house views that Panasonic’s venture into water-related products might not be able to fully offset the decline from the loss of sales of the recently terminated kitchen appliance businesses as the group does not have a first-mover advantage in this space.

Additionally, it said the price point for these products is set slightly higher than its competitors, which may further hinder efforts to gain market share.

On the export front, the research house opines the outlook to be slower for Panasonic due to moderation in global growth, escalation of geopolitical tensions, and slower-than-expected economic recovery from China.

HLIB further stated: “Despite the uncertainties, we reckon Panasonic can weather through this storm, supported by its balance sheet strength of a net cash position of RM530.2 million (or RM8.73 per share) as of March 2024.”

Overall, the research house concluded that despite the lower sales, bottom line improved on the back of the lower operational expenditure (opex), thanks to moderation of raw material prices, increase in finance income from the interest rate hikes, and higher share of results from associate company due to lower marketing costs and other opex incurred.