Power Root Bhd (PWRT) is facing continued challenges despite a recovery in local sales, with analysts offering mixed views on its outlook. CGSI Stock Broking House downgrades the company's performance to HOLD which cut its target price (TP) by 34% to RM1.45. This downgrade reflects concerns over PWRT's ongoing struggles in the Middle East and higher-than-expected input costs, leading to a weaker earnings recovery. The stock is currently rated as a 'Hold' by most analysts, citing uncertainty over its overseas performance.
Following the company's first-quarter FY2025 briefing, analysts have reduced their core earnings per share (EPS) estimates for FY2025 and FY2026 by 14.7% and 15.8% respectively. This is due to the sluggish performance in the Middle Eastern market, compounded by rising raw material and labour costs. While local sales are expected to grow, export markets, especially the Middle East, remain a concern, with projections indicating flat sales for FY2025 despite price adjustments. The company has secured raw material pricing through August 2025, but costs remain elevated compared to historical levels. Nonetheless, PWRT is expected to achieve an 8% compound annual growth rate (CAGR) in EPS over FY2024-2027, driven primarily by strong domestic revenue growth and stabilising input costs.
Malaysia's economic outlook for 2024 is more optimistic, with forecast GDP growth of 5.2% and private consumption growth of 6.9%. Factors such as flexible EPF withdrawals, upcoming civil servant salary increases, and higher cash handouts to low-income households are expected to boost local demand for PWRT's products. These positive local trends may offset some of the challenges in its export markets.
PWRT has been downgraded from ADD, with the TP lowered to RM1.45 from RM2.20. The stock's current price reflects a reasonable valuation, trading at a 13x price-to-earnings (P/E) multiple for calendar year 2026, below its 10-year historical average. While local revenue growth remains strong, analysts are cautious about the mid-term recovery, especially in overseas markets. Upside risks include a faster-than-expected recovery in the Middle East and lower operating costs, while downside risks revolve around weaker sales and continued pressure on margins from elevated input costs.
