10 Key Insights I Learned From PANAMY’S 2017 AGM

Established under the name Matsushita Electric Company (Malaysia) Berhad in 1965, which was listed on Bursa Malaysia in 1966, Panasonic Manufacturing Malaysia Berhad (“PANAMY” or “the company”) – (Bursa: 3719) adopted its current name in 2005. The company is principally engaged in the production and distribution of electrical home appliances and related components under its own brand, Panasonic. According to CIMB research report dated 24 August 2017, PANAMY is one of the largest consumer electronics manufacturer in Malaysia with an estimated domestic market share of 15% to 20%.

On 31 August 2017, the Company held its 52nd AGM for the Financial Year Ended March 2017. We went for the AGM to know more about the future prospects of the company and here are the 10 key insights from the AGM:

#1: For the FYE2017, PANAMY’s revenue have increased by 3% which is mainly due to increase in the sale of Fan products particularly in the export segment. Over the past 5 years, the company’s export market have increased consistently from RM487m in year 2013 to RM679m in year 2017 giving a 5 year CAGR of 8.66%. One of the shareholders have asked whether the consistent increase in the export sales is the trend that the company is relying upon moving forward. The Management replied that it is the company’s plan to maintain a balance between domestic and export sales, however, the recent increase in export sales was partly also due to the weakening of Ringgit Malaysia. As a result, export sales have gone up faster than the domestic sales.

#2: Despite the increased in sales, the company’s profit were lower by 14.6% against previous financial year. The Managing Director (“MD”), Mr. Toyokatsu Okamoto, explained during his AGM presentation that the reduction in profit was due to an increase in raw material costs (i.e. LME copper, LME aluminium & LME steel rebar). In addition, the company also incurred some hedging losses. Concerns on whether such revenue and profit trend will continue in the next financial year was raised by the shareholders and the Management reassured that they expect the revenue to continue to increase by 3% to 4% as a result of higher growth in the export market while its profit will recover in the next financial year.

#3: Currently, there are three (3) strategic regions that make up the company’s target market:

  • Domestic market which the Management still expecting it to contribute approximately 40% of the company’s total revenue;
  • South East Asia, mainly Thailand, Myanmar and Vietnam, which recently has shown good growth potential; and
  • Middle East.

For Middle East, the Management explained that sales has been slowed due to the current low oil prices that has impacted the countries’ economic condition. However, the Management view this as temporary and expect the sales to recover in the future.

#4: In the previous financial year 2016, a wide range of rice cookers was transferred from Thailand factory to the company. Since then, the rice cooker segments has been doing well especially in Vietnam despite the stiff competition. Various marketing activities have been undertaken by the company such as setting up promotion campaigns and working together with the local dealers to create more demand stability in Vietnam.

#5: PANAMY expect its production capacity to increase by 25% with the on-going renovation of two existing factories, Shah Alam I and Shah Alam II (In short, SA I & SA II). The estimated costs of renovation are approximately RM85 mil and this is excluding the machinery cost which the Management estimates it to be an additional of RM20 mil. During the FYE2017, the renovation for both factories were delayed due to the poor economic condition and is expected to be completed in the end of year 2018 for SA I and the end of year 2019 for SA II.

#6: One shareholder noted there is an increase in the number of foreign workers in the year 2017 by approximately 21.9% against previous year, however, the company’s revenue only increased by 3%. Executive Director (“ED”), Ms. Siew, explained that there are many external factors that affect the company’s sales and production could not simply put to a stop just because revenue remain flattish. The increase in employment of foreign workers is mainly because during the financial year 2017 the company faced some difficulties in getting foreign workers, as such, they are trying to maintain balance between outsource and internally recruitment of foreign workers. Nevertheless, the company is trying to find more outsource agent to keep the expenses low.

#7: Given the increase in number of employees, another shareholder suggested to the Management that they should automate the production process since Japan is well known for its technology and PANAMY is under the Panasonic Group in Japan. Hence, transfer of technology would be easier. However, the ED replied that there are many factors to consider before implementing any automation such as the capabilities in Malaysia to handle the transfer of technology from Japan. Nevertheless, the Group has already started to look into it, that is why there are upgrades on the company’s production facilities (SA I and SA II) but this will take time and the company also have to look at the economic condition prior to implementing it.

#8: The recent quarterly result, 1Q2018, reported that there is a share of associate company loss amounting to RM231,000 which is mainly due to derivative losses. One shareholder raised his opinion that in the past there are no such occasion happened and wanted to know whether the reason for such losses incurred and will this losses continue in the near future quarters. Executive Director, Mr. Tadano, explained that the derivative losses were due to the weak ringgit for some imported products and these losses are one-off in nature. As such, it will not affect the company’s earnings in the next coming quarter results.

#9: A proxy from Deutsche Bank raised his concerned over an amount of RM601 million cash deposits placed with related company, Panasonic Financial Centre (Malaysia) Sdn. Bhd. that is not rated by BNM and only yields an effective interest rate of 3.64%. The Chairman of the Board explained that the Panasonic Financial Centre (Malaysia) Sdn. Bhd. (“PFI” or “Panasonic Financial Institution”) act as a treasury functions for all Panasonic Group’s related companies in Malaysia. There are about 22 companies related to Panasonic Group in Malaysia and only PANAMY is listed in Bursa Stock Exchange. Although PANAMY is listed, the company is still part of the Panasonic Group Japan and as such, abide by some of the Group’s Policies such as placing significant funds in PFI.

In addition, maintaining a significant portion of cash instead of distributing it to the shareholders is also part of the Group’s policy. These cash are to be used for investments such as redevelopment of the company’s manufacturing facilities. As far as investment is concern, the Chairman further clarified that the company will always use internally generated funds if possible rather than borrowings and this has been practiced for almost 20 years. As such, shareholders need not worried about this.

#10: Another shareholder reminded the Management that the last bonus issue was dated 2003. Every shareholders in the room burst into laughter including the Management. The Chairman replied that the Management will take note of this but give no assurance on whether bonus issue will be given in near future.

Liked our key insights on PANAMY’s AGM? click here to read more articles on AGM we’ve attended. You can also check out some of our past articles on REITs or increase your investing knowledge by browsing through my articles on Investing 101.

Thomas Chua
An equity investor and co-founder of Stocks Insights. Prior to this, he was attached with medium-size audit firm for 2 years working as an external auditor where he have performed statutory audit on companies from various industries including oil & gas, retailers, manufacturing, industrial products & machinery, etc. He is also involved in Enterprise Risk Management exercise and the internal control framework review for entities undergoing a listing exercise on Bursa Malaysia and SGX Catalyst Board.

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