Poh Huat Resources Holdings Berhad - Leveraging On The Booming Work-From Home Concept

Date: 03/09/2020

Source  :  PUBLIC BANK
Stock  :  POHUAT       Price Target  :  1.80      |      Price Call  :  BUY
        Last Price  :  1.87      |      Upside/Downside  :  -0.07 (3.74%)

As one of the leading furniture manufacturers in Malaysia, we believe Poh Huat’s growth will be supported by the higher furniture sales orders especially from the US. While a near-to medium-term prospect appears to be challenging due to the Covid-19 pandemic, we remain optimistic on Poh Huat’s long term prospects. We are of the view that growth will be underpinned by the US-China trade diversion as we believe there will be a change in furniture consumption, likely to be skewed towards affordable panel based home-office furniture given a change in working environment. Furthermore, Poh Huat will likely benefit from the depreciating RM and the stabilizing raw material prices. As such, we are initiating coverage on Poh Huat with an Outperform rating and a TP of RM1.80 based on a 10x PER pegged to FY21 EPS.

  • An established furniture manufacturer. Poh Huat is an established furniture manufacturer specializing in 2 types of furniture, namely office and home furniture. The group has been involved in the furniture manufacturing business and grew into one of the key furniture players in South East Asia with manufacturing base in Malaysia and Vietnam. Both manufacturing facilities have a combined production space of 3.5m sq ft. Poh Huat’s products are exported to more than 30 countries with US, Canada, UK, Singapore and Middle East being the major markets.
  • Future growth prospects. A change in the working environment post Covid-19 might be a blessing in disguise for Poh Huat as demand for home-office furniture is likely to surge as many organizations are looking to adopt the practice of remote working. We gather that Poh Huat is currently discussing with its clients to introduce new products that will accommodate to the work-from-home trend. In addition, favourable foreign currency exchange rate will likely boost Poh Huat’s sales as approximately 95% of sales is denominated in USD. Based on our sensitivity analysis, we estimate that for every 1% depreciation in the RM, Poh Huat’s earnings would increase by 0.9%. We are expecting an improvement in margins mainly due to the ample supply of rubberwood (sector note Figure 19).
  • Initiating with an Outperform call. We are initiating on Poh Huat with a target price of RM1.80 based on a 10x PER pegged to FY21 EPS. Although the valuation is at a premium as compared to its 5-year historical forward PER of 7x, we reckon this is justified as Poh Huat will benefit from the higher sales orders from US due to the trade war. In addition, Poh Huat declares high dividend payout, leading to an attractive 5-year average dividend yield of 4.6%. Given a 31% upside potential to our target price, we initiate coverage on Poh Huat with an Outperform rating.

Source: PublicInvest Research - 3 Sept 2020

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