Power Root Berhad PWROOT FYE23Q2
Strong revenue growth, steady margins and generous dividend payout
Last Updated: 26 Nov 2022; Analysis is based on FYE22 results and FYE23Q2 interim results.
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- At the time of writing this page, I owned shares of PWROOT.
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- Fair value estimates and earnings projection are not included here, so you won’t perceive buy/sell recommendation.
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Click to view filing of the FYE2022 Annual Report in Bursa Announcement and filing of the FYE2023 Q2 Report in Bursa Announcement.
Strong revenue growth, steady margins but higher operating expenses
PWROOT has shown strong revenue growth +59.4% QoQ, FYE2022-Q2: MYR 80.8M ➡️ FYE2023-Q2: MYR 128.8M; +55% YoY, FYE2022-6M: MYR 155.51M ➡️ FYE2023-6M: MYR 240.87M. The increase in revenue was contributed by the increase in the sales volume in Malaysia and Middle East and average selling price hikes.
| Geographical segment | FYE2022-6M (MYR ‘000) | FYE2023-6M (MYR ‘000) | % |
|---|---|---|---|
| Malaysia | 62,435 | 140,388 | +124.8% |
| Middle East | 36,864 | 78,276 | +112.3% |
| Others | 12,783 | 22,207 | +73.7% |
Refers to its annual results, PWROOT recorded FYE2022: 51.4% and FYE2023-6M: 53.0% gross margin where these rates are slightly higher than recent years’ gross margin.
Despite increase in marketing expenses, staff costs, and write down of obsolete and slow-moving inventories, EBITA margin of PWROOT was improved significantly in the recent two quarters.
I think PWROOT will continue to grow its sales, but inflationary cost pressure, volatile cost of materials and higher operating expenses will reduce its margin temporarily from FYE2023-Q2 onwards. I am still positive that PWROOT FYE2023 results may be better than FYE2022. This is supported by continued recovery on strong domestic demand (Malaysia’s 3Q GDP grows at faster pace of 14.2%) and global demand despite challenging global environment.
Price hikes in a relatively more aggressive manner by its major competitors have placed Power Root in a strategic position to capture consumer downtrading under an inflationary environment, considering the widening price gaps. The dynamics provide the group with larger room for cost pass-through if needed.
RHB Research
Healthy leverage and coverage
By any standard, PWROOT has adequate financial flexibility and ability to sustain its competitive position.
ROIC was lower due to MYR 17M long term debt raised in FYE2022
MYR 17M long term debt raised in FYE2022, thus ROIC was lower in FYE2022.
Consistent >50% dividend payout and >5% CROIC
Consistently over 50% dividend payout and above 5% CROIC every year.
PWROOT is expected to change formula of its premix products to below the taxable sugar limit
The Royal Malaysian Customs Department (RMCD) issued an announcement on 31 March 2022 indicating that the expansion of excise duty on sugar-sweetened beverages, which was announced in the Budget 2022 speech on 29 October 2021 with a proposed effective date of 1 April 2022, has been postponed to 1 January 2023. PWROOT should be able to reformulate up to its premix products to below the taxable sugar limit by the deadline without affecting much of its sales demand.
Attractive valuations
PWROOT Annual Financial Performance
| PROFITABILITY and EFFICIENCY | 2016-03-31 | 2017-03-31 | 2018-03-31 | 2019-03-31 | 2020-03-31 | 2021-03-31 | 2022-03-31 |
|---|---|---|---|---|---|---|---|
| Revenue | 367,532 | 399,301 | 392,782 | 338,012 | 386,099 | 309,218 | 347,910 |
| Growth YoY | 8.6% | -1.6% | -13.9% | 14.2% | -19.9% | 12.5% | |
| EBITA | 36,621 | 45,378 | 14,466 | 34,034 | 59,077 | 34,994 | 30,534 |
| Growth YoY | 23.9% | -68.1% | 135.3% | 73.6% | -40.8% | -12.7% | |
| EBITA Margin % | 10.0% | 11.4% | 3.7% | 10.1% | 15.3% | 11.3% | 8.8% |
| Net Operating Profit After Tax | 27,820 | 34,476 | 10,982 | 25,854 | 44,887 | 26,590 | 23,206 |
| Growth YoY | 23.9% | -68.1% | 135.4% | 73.6% | -40.8% | -12.7% | |
| Invested Capital | 251,141 | 263,830 | 240,810 | 237,799 | 262,185 | 266,703 | 286,602 |
| Growth YoY | 5.1% | -8.7% | -1.3% | 10.3% | 1.7% | 7.5% | |
| Return on Invested Capital % | 11.1% | 13.1% | 4.6% | 10.9% | 17.1% | 10.0% | 8.1% |
| Cash Conversion Cycle | 125 | 187 | 199 | 221 | 179 | 223 | 219 |
| Days In Inventory | 101 | 98 | 118 | 144 | 128 | 152 | 170 |
| Days In Receivables | 116 | 141 | 130 | 127 | 109 | 94 | 96 |
| Days Payable Outstanding | 91 | 52 | 49 | 50 | 58 | 23 | 47 |
| Earnings per share (Reported) | 0.138 | 0.136 | 0.022 | 0.069 | 0.120 | 0.063 | 0.061 |
| Growth YoY | -1.9% | -83.4% | 208.8% | 72.5% | -47.1% | -3.5% | |
| Earnings per share (Adjusted for capital changes) | 0.101 | 0.101 | 0.021 | 0.065 | 0.120 | 0.066 | 0.061 |
| Growth YoY | 0.2% | -79.1% | 207.3% | 83.7% | -44.8% | -7.8% | |
| LEVERAGE and COVERAGE | 2016-03-31 | 2017-03-31 | 2018-03-31 | 2019-03-31 | 2020-03-31 | 2021-03-31 | 2022-03-31 |
| Total Debt | 10,897 | 12,062 | 31,980 | 18,610 | 8,447 | 702 | 19,922 |
| Growth YoY | 10.7% | 165.1% | -41.8% | -54.6% | -91.7% | 2737.1% | |
| Net Debt | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Interest Expense | (456) | (333) | (581) | (625) | (495) | (191) | (288) |
| Growth YoY | -26.8% | 74.3% | 7.6% | -20.9% | -61.3% | 50.5% | |
| Debt / EBITDA | 0.3 x | 0.2 x | 1.5 x | 0.5 x | 0.1 x | 0.0 x | 0.5 x |
| EBITA/Interest | 80.4 x | 136.1 x | 24.9 x | 54.4 x | 119.4 x | 182.8 x | 106.0 x |
| RCF to Net Debt % | — | — | — | — | — | — | — |
| FCFF to Debt % | 200.0% | 172.4% | 36.6% | 113.5% | 786.9% | 2526.6% | 81.0% |
| CASH FLOW | 2016-03-31 | 2017-03-31 | 2018-03-31 | 2019-03-31 | 2020-03-31 | 2021-03-31 | 2022-03-31 |
| Unlevered Free Cash Flow | 21,800 | 20,792 | 11,712 | 21,117 | 66,467 | 17,742 | 16,134 |
| Growth YoY | -4.6% | -43.7% | 80.3% | 214.8% | -73.3% | -9.1% | |
| Cash Return on Invested Capital % | 8.7% | 7.9% | 4.9% | 8.9% | 25.4% | 6.7% | 5.6% |
| Dividend Payout % | 75.66% | 82.63% | 337.23% | 112.60% | 99.04% | 175.45% | 59.62% |
| Dividends per share (Reported) | 0.105 | 0.112 | 0.076 | 0.078 | 0.119 | 0.111 | 0.036 |
| Growth YoY | 7.1% | -32.3% | 3.1% | 51.7% | -6.4% | -67.2% | |
| Dividends per share (Adjusted for capital changes) | 0.077 | 0.084 | 0.072 | 0.074 | 0.119 | 0.116 | 0.036 |
| Growth YoY | 9.4% | -14.6% | 2.6% | 61.6% | -2.2% | -68.7% | |
| Free Cash Flow per share | 0.051 | 0.048 | 0.027 | 0.049 | 0.155 | 0.041 | 0.038 |
| Growth YoY | -4.6% | -43.7% | 80.3% | 214.8% | -73.3% | -9.1% |
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