Power Root Bhd (PWR) has signed a memorandum of understanding (MOU) with Saudi Arabian distributor Abbar & Sons Food Co Ltd (Abbar Foods) to distribute its Alicafe and Alitea premix beverage products in Saudi Arabia.
Both products combined account for 57% of PWR’s total financial year 2022 sales, said CGS-CIMB in the recent Company Flash Note. CIMB views this development positively for PWR’s export sales.
By leveraging Abbar Food’s extensive distribution network of more than 8.5k sales touchpoints, including 1k modern trade partners in Saudi Arabia, CGS-CIMB believes this would enable PWR to further penetrate the Saudi Arabia market and this bodes well for its export sales to the Middle East.
The Middle East market has been a major revenue contributor to PWR, accounting for 32.0%/28.4%/30.5% of total sales in the financial year 2021/2022/2023.
“While the majority of sales are still derived from its Malaysian operations, we see increasing contribution from its export sales going forward, particularly from the Middle East market,” said CGS-CIMB.
CGS-CIMB believes this would be driven by the potential return of tourist arrivals and its increasing brand profile in the region, which could be further bolstered by the tie-up with Abbar Foods in Saudi Arabia, strengthening its distribution network in the Middle East.
“We estimate that every 1% shift in revenue would increase our financial year 2024-2025 future earnings estimates by 3-4%,” said CGS-CIMB.
CGS-CIMB expects PWR to post stronger results quarter-on-quarter in quarter four financial year 2023 future. This is mainly driven by major festive sales such as Chinese New Year and restocking activities ahead of Hari Raya, particularly in Malaysia. Then there is the ongoing price hikes, recovery in sales demand from its export markets.
“We also expect margins to improve sequentially on price hikes and greater economies of scale due to higher utilisation,” said CGS-CIMB.
Downside risks identified by CGS-CIMB is the lower-than-expected sales. Rerating catalysts are stronger-than-expected export sales and margin expansion.
