PETALING JAYA: Power Root Bhd’s sales weakness in the Middle East is likely only temporary even as it aims to sustain its gross profit margins.

       According to Kenanga Research, this is because its distributors are depleting their high inventories which were stocked ahead of price hikes a few months ago.

       The research house said the company recently appointed a new distributor in the Middle East, which resulted in some problems but said this should eventually be resolved.

       Kenanga Research also said the company is grappling with declining sales among middle and lower-income demographic group due to a shift to cheaper alternatives.

       “Although the firm experienced weaker sales in the Middle East and in the China-Hong Kong markets, this was somewhat offset by stronger performance in Singapore and Brunei. It plans to step up marketing efforts in these regions,” it said.

       Meanwhile, the company would like to maintain its gross profit margins at a around 51% on stabilised raw material prices as coffee bean prices have been secured out to March 2024.

       Its creamer costs, of mainly dairy-based products, have also been fixed to Aug 2024, Kenanga Research said. It also noted of an absence of elevated inventory costs, driven by the inventory reduction in recent months.

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       “We maintain our target price of RM2.50 based on a 19 times financial year 2023 price to earnings ratio (PER), which is a discount to the average historical forward PER of 22 times for the food and beverage sector to reflect Power Root’s less extensive product range,” it said.