PETALING JAYA: Panasonic Manufacturing Malaysia Bhd plans to undertake more prudent measures to further strengthen its in-house manufacturing capabilities.
The household electrical appliances manufacturer told analysts and investors at a recent briefing that its new building at SA2 plant in Shah Alam, Selangor, equipped with new robotic auto spray facilities, would be used to increase the in-house production of injection parts.
The group is shifting to in-house parts and mould instead of outsourcing to external parties, MIDF Research said in its report.
Panasonic is assessing the financial impact of the recent floods that had disrupted its SA2 plant, which had to be closed for two weeks in December last year.
MIDF Research noted the company was still unable to quantify the financial impact of the plant disruption at this juncture until the full resumption of operations.
The SA2 plant was sufficiently insured, and the group is currently working with insurance companies for claim purposes, it said, adding that Panasonic’s SA1 plant in Section 15, Shah Alam, was unaffected by the floods.
However, as almost 15% of Panasonic’s suppliers had been affected by the floods and were still recovering, there were supply chain disruptions impacting the operations of both the SA1 and SA2 plants.
The suppliers were estimated to resume their operations by end of February 2022, MIDF Research said.
“The group is navigating the operations presently by resourcing from other suppliers, and supplier requesting for subcontractor to support operations,” it wrote in its report.
“Currently, the production ratio for fan and vacuum cleaner is at 40% and 80%, respectively. The SA2 plant has started some of its operations and full operation is estimated to resume in March 2022,” it added.
MIDF Research maintained “neutral” on Panasonic, with an unchanged target price of RM30.45.
The brokerage said rising raw material prices would be a key challenge for Panasonic.
“While the price of resin has stabilised, the prices of other raw materials such as copper, aluminium and steel have increased drastically by 38%, 46% and 76%, respectively from November 2020,” it said.
To mitigate the impact of rising raw material prices, it noted, Panasonic had raised the selling price of fans since this month by 5% to 10%. The company would likely introduce another round of price increase for other products in April, it added.
“However, given the significant increase in the price of raw materials, we opine that the moderate hike introduced by the group for its products may not be able to cover the rising cost and could result in a downward pressure on the profit margins,” MIDF Research said.
“In mitigation, the group is trying to reduce fixed cost to achieve the business profit target through cost rationalisation strategy by reducing the administrative and personnel expenses,” it added.
Meanwhile, CGS-CIMB Research reiterated “hold” on Panasonic, with a lower target price of RM31.20, compared with RM31.50 previously.
The brokerage said it liked Panasonic for its attractive dividend yields of around 7% for financial years ending March 31, 2023 (FY23) and FY24; a strong balance sheet, with net cash of RM394mil (or RM6.50 per share) as at end-September 2021 and an established brand presence and solid market share of consumer electronics in the domestic and overseas markets.
CGS-CIMB Research said it was positive over Panasonic’s move to raise the selling prices of its fans, which contributed 50% of sales for the first half of FY22 sales, in January, and the plan to raise the selling prices of other products in April.
It noted Panasonic had also embarked on cost rationalisation initiatives, such as a reduction in headcount and marketing expenses.