SYNERGY HOUSE CONTINUES GROWTH TRAJECTORY WITH REVENUE GROWTH OF 32.07% TO RM77.4 MILLION

Business Prospects Remains Robust Supported by B2B and B2C Segment, Impacted by One-off Losses

SHAH ALAM, 14 AUGUST 2024 – Synergy House Berhad (“Synergy House” or the “Group”), a cross-border e-commerce seller and furniture exporter of ready-to-assemble (“RTA”) home furniture, today announced its financial results for the second quarter ended 30 June 2024 (“Q2 FY2024”). The Group achieved a revenue of RM77.4 million, marking a significant 32.07% increase compared to RM58.6 million in the corresponding period last year ("Q2 FY2023").

In Q2 FY2024, Synergy House reported a loss before tax ("LBT") of RM6.4 million, compared to a profit before tax ("PBT") of RM8.5 million in Q2 FY2023. This loss was primarily driven by a one-off provision for doubtful debts amounting to RM13.4 million related to a specific customer which is partially net off against expected trade credit insurance receivable of RM3.15 million for a net impact of RM10.25 million. Excluding this one-off impact, the Group would have recorded an expected PBT of RM3.8 million and a profit after tax ("PAT") of RM2.8 million for the quarter.

The Group’s revenue growth was supported by strong sales in both its business-to-business ("B2B") and business-to-consumer ("B2C") segments. The B2B segment recorded revenue of RM35.5 million, a 10.94% increase from RM32.0 million in Q2 FY2023, mainly due to robust sales in the United States (“US”) and United Kingdom (“UK”) markets. Meanwhile, the B2C segment posted revenue of RM41.9 million, a 57.52% increase from RM26.6 million in Q2 FY2023, driven by strong performance across key e-commerce platforms.

Geographically, the US continues to be the Group’s largest market, contributing RM39.7 million or 51.29% of the total revenue for Q2 FY2024. This is followed by the United Kingdom, which accounted for RM29.2 million or 37.72%, and the United Arab Emirates with RM3.4 million or 4.39%. The Group also saw contributions from Malaysia and other regions, indicating a well-diversified revenue base.

Comparing Q2 FY2024 to the immediate preceding quarter (“Q1 FY2024”), Synergy House reported a slight decline in revenue, amounting to RM77.4 million compared to RM83.7 million, marking a decrease of approximately 7.53%, which saw declines of 4.14% and 11.29% in both the B2C and B2B segments respectively.

This dip was primarily due to a lower revenue contribution from  the B2C segment in US and the B2B segment in Middle East. In regards to the B2C segment, despite the lower revenue reported, the total quantities sold was higher by 5% in Q2 FY2024 as compared to Q1 FY2024. The Group continues to grow the B2C business via onboarding to new platforms and continuous expansion in current platforms where currently the Group is operating in 19 platforms covering 6 countries.

Apart from the net impact of the provision for doubtful debts and expected trade credit insurance receivables of RM10.25 million, the results for Q2 FY2024 were also affected by loss opportunities in sales due to inventories costing RM0.55 million belonging to the Group that were damaged in a fire incident located in third party warehouse in UK. The Group was able to recover approximately 95% of the cost of these inventories subsequent to the quarter. Despite the loss in sales opportunity due to this incident, the B2C in UK recorded a marginally higher revenue of RM6.58 million in Q2 FY2024 as compared to Q1 FY2024 of RM6.53 million. In addition, the Group took proactive measures to optimise inventory holdings by clearing older inventories and non-performing stock keeping units (“SKU”) at lower prices and margins, an activity which will reduce the storage costs associated to the slow moving inventories. Furthermore, as part of the growth strategy of the Group, manpower costs have increased to cater for the growth trajectory of the Company, whereby headcount has increased by approximately 10% in Q2 FY2024 as compared to Q1 FY2024.

Executive Director of Synergy House, Mr. Tan Eu Tah commented, “While our Q2 FY2024 results were impacted by a one-off provision for doubtful debts, we remain confident in the underlying strength of our business. We believe that our strategic initiatives in the B2C segment will drive continued success, and we are focused on capitalising on the vast opportunities in the global furniture e-commerce market. While some of the strategic initiatives for the B2C growth include incurring costs now for advertisements and promotions, price reduction for new items to gain reviews and traffic and increase in manpower, this will ensure better profile in the e-commerce platforms and supports the long term sustainability and growth of revenue to the Group.”

Executive Director of Synergy House, Mr. Teh Yee Luen added, “This one-off impact does not change our long-term outlook and we do not see this as an impediment for our growth plan. Our business fundamentals remain strong, and we are committed for Synergy House to continue its growth trajectory. We continue to explore new platforms, new countries as well as new product categories and new higher price ranges in our B2C segment to further fuel the growth in our revenue. By leveraging technology and artificial intelligence to refine our strategies, particularly in the B2C segment, we are well-positioned to navigate challenges and seize new opportunities as they arise.”

The Group remains cautiously optimistic about the potential of the global furniture e-commerce market. With its strategies to grow the B2C segment, including expanding customer reach through additional e-commerce platforms and new countries, explore new product categories and higher price range, enhancing revenue through advertisements and promotions, and leveraging technology and artificial intelligence ("AI"), Synergy House is well-positioned for continued growth. Despite global economic challenges, the Group’s affordably priced home furniture products and strong presence on third-party e-commerce platforms in key markets are expected to drive further expansion.

Recently, the Group has announced a new business model in collaboration with Wayfair, one of the largest online destinations for home furnishings. This strategic initiative is expected to significantly enhance the market reach by enabling local vendors to tap into the global e-commerce platform, further strengthening their position in cross-border e-commerce market.

As at 14 August 2024, Synergy House's share price stands at RM1.08, reflecting a market capitalisation of RM540.0 million. Notably, this share price remains the 'BUY' coverage initiated by RHB Investment Bank on 29 April 2024, which set a target price of RM1.61.