Poh Huat Resources holdings Berhad - In-Line With Expectations

Date: 17/09/2020

Source  :  PUBLIC BANK
Stock  :  POHUAT       Price Target  :  1.80      |      Price Call  :  BUY
        Last Price  :  1.59      |      Upside/Downside  :  +0.21 (13.21%)

Despite recording a lower revenue of RM132.8m (-19.4% YoY), Poh Huat managed to report a stronger 3QFY20 net profit of RM11.5m, (+2.4% YoY) mainly driven by lower costs and more efficient use of raw materials. Excluding one-off items, cumulative 9MFY20 core net profit of RM28.5m is in line with our and consensus estimates at 74% and 76% of full year numbers respectively. We remain positive on Poh Huat’s future prospects and opine that growth will be underpinned by an increase in furniture demand owing to US-China trade diversion, as well as from stronger orders ahead of year-end festive sales in the US. Our Outperform call is affirmed, with TP of RM1.80 (10x PER pegged to FY21 EP) unchanged. The group declared a third interim dividend of 2 sen, bringing the total dividend declared to-date to 5sen, translating to dividend yield of 3.6%.

  • 3QFY20 revenue lower at RM132.8m (-19.4% YoY, +9.6% QoQ) as production and shipment in both Malaysia and Vietnam were affected by lower production levels and demand due to the Covid-19 pandemic. Turnover from Malaysia declined by 23.3% YoY to RM59.4m, mainly due to the Movement Control Order (MCO) in May. Meanwhile, Vietnam operations recorded lower revenue of RM73.4m (-16% YoY) as the group adjusted its production and shipping schedules to accommodate its customers.
  • 3QFY20 core net profit only fell marginally to RM12.3m (-1.2% YoY, >100% QoQ) despite the larger decline in revenue, mainly due lower selling expenses incurred and more efficient use of raw materials. Poh Huat’s operating profit margin improved by 5ppts on a YoY basis in 3QFY20, mainly attributable to the lower opex in Malaysia segment given the lower costs and the more efficient use of raw materials. Meanwhile, the lower raw material costs incurred in Vietnam were partially offset by the increase in labour costs due to the re-hiring of new production workers.
  • Expecting stronger sales going forward. We gather that Poh Huat’s major customers have resumed orders to replenish stocks in anticipation of year-end festive sales and longer lead time for delivery. Traditionally, US home furnishing sales have always been at its strongest during the year end festive season. Furthermore, we believe that the change in working environment will augur well for Poh Huat as demand for home-office furniture will likely surge given the practice of remote working.

Source: PublicInvest Research - 17 Sept 2020

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