Power Root announced its Q2 FYE 2015 results on 25 November 2014. Since the company changed its financial year to March from February, the latest financial result is not comparable. However, if you look at the % breakdown relative to revenue, you will discover the company is actually not doing well.
The absence of other income and higher other operating expenses contributed to a contraction in net profit margin to 5.16% in Q2 FYE 2015 compared with Q2 FYE 2014 of 13.49%. Marketing expenses come under “other operating expenses”. This shows the company had to spend more to stand out in the competitive instant coffee market.
If you look at the actual numbers, all the marketing efforts have contributed to higher revenue but this has not been translated into bottom line growth.
Performance for the 12 months ending March 2015 is likely to see a boost in other income as the company has recently announced the disposal of property worth RM 2.4 million. However, how much more assets can the company dispose to boost its bottom line.
Overseas share of revenue is rising. The expansion in the MENA region may be one of the factors for the need for higher marketing spending.
Assuming second half EPS is 3 cent, full year at 7.7 cent, the current valuation will be 20x PE based on the current price of RM 1.55 as of 9.08am on 26 November 2014.