Poh Huat has temporarily halted its production facilities in Binh Duong and Dong Nai on 17th and 20th July 2021 respectively. This was in compliance with Directives No.16 issued by the Government of Vietnam, to close all nonessential businesses to contain the spread of Covid-19 virus in the country. While the temporary closure will result in a delay in shipments, we think that the impact on Poh Huat’s earnings will be minimal, as the group has a certain amount of ready inventory to meet certain orders. In addition, should the need arises, Poh Huat will be able to increase its production with extended shifts upon re-commencement. We estimate that for every 2 weeks of closure, Poh Huat’s earnings would fall by c.2%. Our Outperform call and TP of RM2.20 based on 10x CY22 EPS is maintained.

• Directive No.16. The Vietnamese government has ordered the implementation of Directive No.16, which became effective on 19th July 2021. Under the directive, non-essential businesses are required to close to contain the spread of Covid-19 virus in 16 southern states of Vietnam. Currently, no employees in Poh Huat’s Vietnamese manufacturing facilities have shown any symptom of Covid-19 infection. Barring any unforeseen circumstances, Poh Huat’s Vietnamese operations will be closed for 14 days under the directive.

• Earnings impact. The temporary closure of Poh Huat Vietnamese operating base is expected to result in delay in shipments to its customers. However, the group is currently in the midst of discussing with its customers to reschedule its delivery dates. We are of the view that the temporary closure is unlikely to have any material impact on Poh Huat’s earnings, as the group has certain amount of ready inventories to mitigate the delay in some shipments. In addition, Poh Huat could increase its production with extended shifts when operation resumes if needed, as we understand that the Vietnamese operations were operating at 2 shifts prior to the closure. We estimate that for every 2 weeks of closure, Poh Huat’s earnings will be impacted by c.2%. Note that Vietnam Operations contributes c.55% of the group’s total sales in FY20.

Source: PublicInvest Research - 22 Jul 2021