Poh Huat posted headline net profit of growth of 82.8% YoY to RM12.7m for 2QFY21, driven by the higher turnover from both Malaysia and Vietnam operations. After adjusting for one-off items, cumulative 1HFY21 core net profit came in at RM22.7m. Cumulative 1HFY21 earnings were below our and consensus forecasts, accounting for 39% of our full-year estimates. The discrepancy in our numbers was mainly due to the higher-than-expected operating costs in Malaysia, a result of production halt in Johor previously. We are adjusting our earnings forecast for FY21-23F downwards by 5-9%, to factor in the temporary closure of Malaysia operations due to stricter lockdown measures and the delay in expansion of production capacity in Malaysia. Nevertheless, we remain positive on Poh Huat’s outlook, mainly due to the strong orders from the US given the growing remote working trend. We maintain our Outperform call based on a 10x PER and a higher TP of RM2.20 (previously RM2.15) as we roll forward our valuation base year to CY22 EPS.

• 2QFY21 revenue increased by 36.6% YoY to RM165.5m. Despite having lower production days due to a Covid-19 related production halt and a Chinese New Year break, revenue for Malaysia operations grew by 32% YoY on the back of better production and inventory management. Meanwhile, sales for its Vietnam’s operations jumped by 40% YoY, attributable to the strong demand for home and office furniture.

• 2QFY21 PBT grew by 64.4% YoY to RM15.3m, due to the margins expansion from Poh Huat’s Vietnamese operations. PBT margin for Vietnamese operations improved to 10.5% (2QFY20: 5.8%), due to labour efficiency and better absorption of overheads from its higher level of production. However, Malaysia operations saw its PBT margin declined to 7.4% (2QFY20: 10.2%), as the lower production days has resulted in a disproportionately higher absorption of fixed factory overheads and labour costs.

• Expansion update. Poh Huat has previously allocated c.RM10m to build 2 blocks of hostel cum factory for its Malaysia operations, which was initially slated for commissioning by end of 2021. However, there has been a delay despite the completion of factory construction, due to the Covid-19 related travel restrictions delaying the installation of machineries.

• Future prospects. While the near-term outlook remains challenging, given the temporary closure of the Malaysian operations, we are still positive on Poh Huat’s long term outlook, as we understand that group had received orders for delivery till November 2021. In addition, according to the US Census Bureau, US New Home Sales grew by 9.2% YoY in May to 769k.

Source: PublicInvest Research - 30 Jun 2021