KUALA LUMPUR: The slowdown in demand in Power Root Bhd
's domestic and Middle East markets is likely to continue as the macro headwinds persist while elevated raw material prices narrow margins.
In a post-results report, Kenanga Research said it anticipates weaker quarters ahead for the pre-mixed instant powder beverage company amid the persistent high inflation and slowing economic growth.
Helping to mitigate the downside, however, is the company's product diversification and expansion of its product lines.
According to Kenanga, one of the key growth areas could be the high-margin ready-to-drink (RTD) products. A new RTD products plants is expected to be completed by 2024-2025.
"Meanwhile, there are eight SKUs for Malaysia (with three of them expected to hit the market in FY24) and five for the GCC countries in the pipeline," said the research firm.
Power Root announced its 1QFY24 results yesterday, which revealed a core net profit of RM15.3mil, below market expectations.
The result came to 25% and 24% of Kenanga's and consensus full-year estimates, which sets Power Root up for a disappointing year given the coming quarters are expected to yield weaker earnings.
"We cut our FY24-25F net profit by 8% and 14%, respectively, to reflect the softer domestic and export markets.
"Having also rolled forward our valuation base year to FY25F (from FY24F), we lower our TP by 7% to RM2.50 (from RM2.70)," said Kenanga.
The research firm reiterated its "outperform" call on the company as its target price of RM2.50 remains at a 36 sen premium to its Monday closing price of RM2.14.
