Panasonic Manufacturing Malaysia Berhad (PANAMY) was first established under the name Matsushita Electric Company (Malaysia) Berhad in 1965, which was listed on Bursa Malaysia in December 1966. It assumed its current name in 2005, in line with its objective of global brand unification, to strengthen Panasonic’s brand value and competitiveness.
Currently, PANAMY manufactures consumer electronics including fans, vacuum cleaners, kitchen appliances and more under its own brand name, Panasonic, in two factories located in Shah Alam: Seksyen 15 (SA1 Plant) and Seksyen 23 (SA2 Plant). The company has grown to become one of Malaysia’s most prominent consumer electronics manufacturers and commands 15-20% share of the domestic consumer electronics market.
If you (or your parents) were lucky enough to have invested RM1,000 in PANAMY when it first listed, and subsequently subscribed to the 1975 rights issue for another RM350, your stake would now be worth RM728,838.40 (at RM37.60 a share as of 17 October 2019). On top of that, you would have received a total of RM520,967 in gross cash dividends.
PANAMY has clearly been a great investment in the past, but will it be able to sustain its growth rate in the future? I attended the 2019 Panasonic Malaysia AGM to find out:
1. Revenue fell 5.9% year-on-year to RM1,127.9 million for the financial year ended 31 March 2019 (FY2019). This was mainly due to lower export sales to the Middle East market which was affected by increased trade sanctions imposed by the U.S. on certain Middle East countries. Sales to the region declined by 21.6% while total export revenue decreased by 11.6% y-o-y. This was mitigated by domestic sales growth during the two-month zero-rated GST period; domestic market sales showed a marked increase of 10% to 50% for various products during the tax holiday period. Sales to Malaysia and other ASEAN countries represented 74% of total revenue, with Malaysia contributing 43%.
2. Home Appliances products contributed to approximately 50% of total revenue, while fan products and others contributed the rest. Sales of ceiling fans contributed 36% of total revenue, followed by electric fans (12.8%), kitchen appliances (13.8%), home showers (13.3%) and electric irons (6.6%). The remaining 17.5% was contributed by rice cookers, vacuum cleaners, and ventilating fans.
3. Profit before tax (PBT) fell 21.0% y-o-y to RM131.3 million, in line with the lower sales during the year. The drop was also exacerbated by a RM7.1 million derivative loss (compared to a derivative gain of RM7.7 million in FY2018) due to strengthening of the Malaysian ringgit against the U.S. dollar, and lower shared profits from associates of RM 1.6 million (FY2018: RM5.8 million)
4. PBT margin of home appliances fell to 11% in FY2019 — compared to 14% in FY2018 — due to rising raw material cost and an unfavourable sales mix. PBT margins of fan products and others fell slightly to 12% in FY2019, versus 13% in FY2019.
5. PANAMY has a consistently high dividend payout ratio. In FY2016-17, the company had a payout ratio of 60% of its PBT, (excluding the results of share of associated companies). In FY2018-19, PANAMY paid 100% its PBT in dividends, further rewarding shareholders who held onto shares of the company. However, dividend per share fell to 226 sen in FY2019, compared to 248 sen in FY2018, in line with the lower PBT.
6. PANAMY aims to become the no. 1 small home appliances manufacturer in Asia and provide value to customers in residential spaces such as bathrooms, kitchens, living rooms, and bedrooms. To do this, the company is focused on developing key products with high growth potential. New products launched during the year include slow cookers, meat grinders and blenders with enhanced features, and new designs for small kitchen appliances. The company also developed a new stepless home shower (to be marketed in Thailand and Vietnam) and new designs of ceiling fans and wall fans. A shareholder asked whether management plans to venture into smart home products, which are rapidly becoming more affordable. The management hinted that PANAMY is in the process of developing smart home products under the Panasonic brand, and the release of the first product will be in the near future.
7. The global economy is projected to expand moderately, following slower growth in both advanced and major emerging market economies. The International Monetary Fund projects global GDP growth to slow from 3.6% in 2018 to 3.2% in 2019, before picking up to 3.5% in 2020. Any further escalation of the trade war between the U.S. and China will negatively impact global trade and investment. The management said that PANAMY would be affected but to a lesser extent as a large portion (73%) of the company’s sales are derived from Malaysia and neighbouring ASEAN countries.
8. Another issue facing the manufacturing industry today is the rising cost and shortage of labour. This is especially true for 3D (dirty, difficult, dangerous) jobs, which are mostly performed by foreign workers. In a push to wean Malaysia off its dependency on foreign workers, the government had set a minimum wage of RM1,100 for foreign workers effective 1 January 2019, along with other moves that are expected to further increase the cost of hiring foreign workers. To reduce dependency on labour and to take advantage of the government’s promotion of high-valued manufacturing, PANAMY has started using automation and robotics systems in its manufacturing processes. The company installed 17 units of robotics systems in the Life Solutions division and five units in the auto brazing system, which resulted in efficiencies and total savings of RM1.6 million per annum.
9. On the operational front, the management announced the expansion of a new wing at its SA2 Plant, which is expected to increase production capacity by 18%. PANAMY plans to use the space to increase its capacity of producing appliance parts in-house in order to reduce their dependency on external part makers.
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