Panasonic Manufacturing Malaysia Berhad manufactures and distributes a variety of home electrical appliances under the Panasonic brand in two factories situated in Shah Alam, Malaysia. As of 5 September 2019, the company is worth a total of RM2.5 billion in market capitalisation.
In this article, I’ll give an update on Panasonic Malaysia’s latest annual results, its future plans, and stock valuation. Here are 10 things to know about Panasonic Malaysia before you invest:
1. Panasonic Malaysia generated RM479.2 million in domestic sales in 2019, accounting for 42.5% of total revenue. Since 2010, domestic revenue has risen at a compound annual growth rate (CAGR) of 3.88%. The company saw a marginal dip in revenue in 2015 due to the implementation of the goods and services tax that year.
2. Panasonic Malaysia did RM648.7 million in export sales in 2019, which accounted for 57.5% of total revenues. Compared to the previous year, this was a dip of 11.6% from RM733.7 million. This was mainly due to a 21.6% drop in export sales to the Middle East as the region was affected by a rise in trade sanctions imposed by the U.S. on certain nations in the region, and a 6.6% dip in export revenue in Asia due to the U.S.-China trade war. Since 2010, export revenue has grown at a CAGR of 7.45%.
3. As a result, total revenue declined 5.9% y-o-y to RM1.13 billion in 2019. Likewise, shareholders’ earnings fell 19.3% y-o-y to RM105.8 million. Earnings fell substantially due to a RM7.1 million fair value loss on derivative financial instruments (compared to a 7.7 million gain the year before), and lower profits from associate companies. Since 2010, shareholders’ earnings have grown at a CAGR of 5.58%.
Panasonic Malaysia also has a 10-year return on equity of average of 13.26%.
4. From 2010 to 2019, Panasonic Malaysia generated RM954.0 million in cash flows from operations; received RM91.7 million in dividends from Panasonic Malaysia Sdn Bhd, a 40%-owned associate company; and RM179.7 million in interest income. Out of which, the company has spent on RM324.6 million in net capital expenditures and paid RM745.7 million in dividends to shareholders. As of 31 March 2019, cash reserves stood at RM623.3 million — out of which RM480.0 million is place in fixed deposits with a related company, Panasonic Financial Centre (Malaysia) Sdn Bhd, at an effective interest rate of 3.91% per annum.
5. Cash conversion cycle (CCC) as of 31 March 2019 was negative 11 days. Panasonic Malaysia takes on average 65 days to pay its suppliers, 20 days to sell its inventory, and 34 days to collect payment from its customers. This essentially means the company’s working capital is funded by its suppliers as it collects cash faster than it pays out. Over the past 10 years, CCC has always been negative except for 2015-2016.
6. As of 31 March 2019, Panasonic Malaysia has no long-term borrowings. It has RM779.1 million in current assets — of which 80% comprises cash and fixed deposits — and RM172.4 million in current liabilities. Thus, the company has a current ratio of 4.52 and a cash ratio of 3.61.
7. Panasonic Malaysia is turning towards automation and robotics to streamline its manufacturing processes. It installed 17 robotics units to accelerate the manufacturing of fans and its related products. This has resulted in annual costs savings of about RM1.0 million. The company also installed five robotics units in its appliances division which lowered annual costs by RM600K. Moving on, Panasonic Malaysia will continue to explore opportunities to further automate its manufacturing processes and reduce costs.
8. P/E ratio: Panasonic Malaysia made RM1.74 in earnings per share in 2019. Based on its share price of RM41.04 (on 5 September 2019), its P/E ratio is 23.58, which is above its 10-year average of 16.45.
9. P/B ratio: As of 31 March 2019, Panasonic Malaysia has net assets per share of RM13.78. Thus, its current P/B ratio is 2.98, the highest in 10 years.
10. Dividend yield: Panasonic Malaysia paid a record dividend per share of RM2.26 in 2019. The reason for the higher dividend is due to a higher payout ratio of 130%.
If it maintains its dividend, Panasonic Malaysia’s dividend yield is 5.51%, which is above its 10-year average of 3.35%.
The fifth perspective
Panasonic Malaysia has delivered consistent growth in sales, profits, and dividends to shareholders over the last 10 years, which is reflected in its rising stock price.
However, because of this, Panasonic Malaysia is trading well above its historical valuation averages. Despite the relatively higher yield, it’s important to note that a payout ratio of 130% will not be sustainable over the long run.