KUALA LUMPUR: Multiple headwinds from muted sales, rising raw materials, and higher operating expenses are expected to persist and would pose a challenge to Panasonic Manufacturing Malaysia Bhd's earnings moving forward.
Hong Leong Investment Bank Bhd (HLIB Research) said Panasonic saw its net profit for the fourth quarter (Q4) ended March 31, 2022 (FY22) tumble 65.37 per cent to RM15.78 million from RM45.57 million in the same quarter last year.
The bank-backed research firm said the disappointment was due to lower-than-expected sales from operations disruptions and margin compression from elevated raw materials.
HLIB Research has gathered that there were also restructuring costs incurred amounting to RM12.2 million for the rice cooker product termination, which has suffered losses for the past years attributable to the high raw material costs and eroded profit margins.
Additionally, some kitchen appliance products will also be terminated in the financial year 2023 (FY23) on the back of the realignment of global production for the Panasonic Group.
"Based on management guidance, the termination of the rice cooker and kitchen appliances will impact its revenue by 6 per cent and 7 per cent, respectively," it said.
As for the flood incident, HLIB Research said Panasonic had incurred substantial losses from damaged inventories and facilities, coupled with the absence of sales from the operation disruption in FY22.
"The total losses amounted to approximately RM24.7 million, and we understand that the insurance claimed so far only covers 49 per cent of the total loss, with the remaining amount still under review.
"Currently, the utilisation rate for the fan segment is running at 85 per cent, and the vacuum cleaner is at 90 per cent," it said.
Besides, HLIB Research said Panasonic expects to roll out price hikes for other products in the second half of 2022 (2H22).
Despite that, HLIB Research opines that the company will only be able to pass on the costs to consumers partially and would still have to face eroding margins.
"Additionally, Panasonic is also looking further to automate its production in light of rising labour costs due to the new minimum wage policy and labour supply crunch.
"We reiterate Sell on the stocks with an unchanged target price of RM22.33 based on an unchanged 17 times price per earning (PE) multiple on FY23 earnings," it added.