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PublicInvest Research

Author: PublicInvest   |   Latest post: Tue, 1 Dec 2020, 10:01 AM

 

Homeritz Corporation Berhad- Hit a Home Run

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Homeritz reported a 4QFY20 net profit of RM7.2m, grew by 61% YoY mainly attributable to the increase in export volume to the US market. After stripping out forex translation gain, Homeritz’s full-year FY20 core net profit came in at RM22m, above our and consensus estimates, constituting c.109% of full-year forecasts. The discrepancy in our forecast was mainly due to the stronger-than-expected orders from the US market and a lower-than-expected effective tax rate. We adjust our FY21-FY23F earnings forecast upwards by 4-13%, to account for the stronger demand for upholstered furniture. Subsequently, our TP is raised to RM1.05 (from RM0.93) based on an unchanged 12x FY21F PER. We maintain our Outperform call on Homeritz. Downside risk to our call includes the risk of lockdowns being imposed by the US and Europe that could affect international trade. On a side note, Homeritz proposed a 1.5 sen dividend per share (FY19: 3 sen per share).

  • 4QFY20 revenue increased by 37.8% YoY to RM46.3m. We understand that the growth in revenue was largely attributable to the higher export revenue to the US market as well as a more favourable forex rate. On a QoQ basis, Homeritz’s revenue jumped by 90.3% as productions was affected by the Movement Control Order (MCO) in the previous quarter. Note that Homeritz shut down its operations since mid-March and have only returned to its full capacity in May.
  • 4QFY20 core net profit surged by 93% YoY to RM7.5m mainly boosted by the better economies of scale as Homeritz ramped up on its utilization as well as the lower leather costs. As such, Homeritz’s net profit margin improved by 2ppts on a YoY basis to 15.5% (4QFY19: 13.3%).
  • Outlook. We are of the view that the demand for Malaysian furniture will remain robust owing to the US-China trade diversion, which should bode well for Homeritz given its exposure in the US. Meanwhile, as the US new home sales surged 32.1% YoY in Sept, we believe that strong demand from the US market will be sustainable moving forward. According to McKinsey Global Institute’s data, many home furnishing retailers have seen a 15-40% increase in online customer growth since the Coronavirus pandemic. We mainly attribute the growth in furniture sales to the change in working lifestyle as work from home has triggered an uptick in demand for home office furniture. We gather that Homeritz’s export volume has since recovered to pre-Covid-19 levels with an increase in lead time (from 45-60 days initially to 75-90 days) mainly due to the overwhelming orders from its customers

Source: PublicInvest Research - 30 Oct 2020

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