AMINVEST: Financial Performance In Line Amid Cost Efficiencies and Export Recovery
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
Power Root Berhad delivered a core net profit of RM7.8 million for the first quarter of FY26, which was broadly in line with AmInvestment Bank’s and consensus full-year estimates, representing 26.6% and 22.6% of forecasts, respectively. The company demonstrated strong bottom-line growth, with core net profit increasing 34.4% quarter-on-quarter and 9.7% year-on-year.
Performance Review
This robust profit performance came despite an 11.0% year-on-year decline in revenue, primarily attributed to softer sales in the Middle East and a slowdown in Oligo product sales. The weakness in Oligo sales followed Nestlé’s aggressive return to the market with increased marketing and discounts, impacting what was previously a high base for Power Root.
Despite these revenue challenges, gross margin saw a significant improvement of 3.3 percentage points year-on-year, reaching 54.8%. This expansion was largely driven by a strategic price hike implemented in March 2025. Furthermore, management has proactively secured coffee futures until December 2026, a move expected to ensure margin resilience and allow for potential future price adjustments to mitigate ongoing cost pressures from elevated coffee bean prices.
Future Outlook and Challenges
On the export front, there are early indications of a recovery, with export sales rising 11.5% quarter-on-quarter. However, the sustainability of this rebound remains a key monitorable, particularly in securing a distributor for Saudi Arabia. Looking ahead, the UAE market could provide a boost, with an anticipated revision of its sugar tax system in 2026 to a threshold-based approach, potentially exempting Power Root and supporting sales. The bank also notes that prolonged elevated coffee bean prices continue to pose a risk to margins.
Investment Bank’s Assessment
AmInvestment Bank is maintaining its “HOLD” recommendation on Power Root, with an unchanged target price of RM1.15. The valuation is based on a target CY26F PE of 14x, aligning with its five-year historical average. The bank notes Power Root’s steady dividend policy, with an 80% payout ratio projected to yield between 4.3% and 5.3% over the next three years.
