Hot Stock Power Root rises to one-year high on positive review

by **Cals** Tue 21 Jul 2015, 16:54

Hot Stock
Power Root rises to one-year high on positive review

KUALA LUMPUR (July 21): Shares in Power Root Bhd ([You must be registered and logged in to see this image.] Financial Dashboard) rose to one-year high of RM2.28, after research firms said the company was resilient and were positive on its outlook.
Power Root (fundamental: 2.8; valuation:2.1)’s share price rose 10 sen or 4.59% to RM2.28, but pared gains and settled at 2.27 as at 11.24am.
A total of 521,300 shares changed hands.
The coffee and herbal energy drink manufacturer has been on an upward trend since last Thursday (July 16). It was picked by Insider Asia’s Stock Of The Day on July 16.
In a note today, Kenanga Research gave a trading buy call for Power Root, with fair value of RM2.58, a 23.1% upside including dividend.
“We derived our fair value by pegging 17.5 times price-earnings ratio (PER) on FY16 earnings, 40% premium from the valuation ascribed to small-cap stocks (12.5 times) under our On Our Radar (OR) coverage, which is justifiable based on our recent research study on the foods and beverages (F&B) stocks,” Kenanga said.
It added: “We think that the valuation is attractive for investors seeking exposure to the defensive and resilient F&B sector, as it also represents a discount of 30% from the large-cap F&B stocks under our core coverage,” it added.
Kenanga opined the company stands to benefit from a strengthened US dollar as it is export-oriented, with the Middle-east being the main market that contributed 70% of total export sales.
The company is also in a net cash position of RM54.2 million or 17.9 sen/share as of fourth quarter of 2015 (4Q15), and has been paying out 61.1%-73.5% of its net profit to reward its shareholders in the past three years, the research firm said.
“We project earnings growths of 11.8% (calculated based on annualized FY15 net profit) and 7.4% in FY16 and FY17 respectively, which is commendable for a consumer play, considering the current soft local consumer sentiment.
“More importantly, Power Root possesses the resilient and defensive nature of the F&B industry and thus, justifies our premium valuation thesis.
“In a nutshell, the stock should be viewed from the valuation and earnings rebound angles, rather than on just earnings growth alone, due to its matured earnings base,” Kenanga added.
In a note on July 16, Insider Asia had said it likes the company for its long-term growth potential, capable management, strong fundamentals and decent dividends, although near-term earnings will be affected by weaker consumer sentiment.
"The stock trades at fairly reasonable valuation at an ex-cash normalised trailing 12-month price-earnings ratio and P/B of 2.8 times via-a-vis the F&B industry average PER of 17 times and P/B of 3.8 times," it said.
(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)