Homeritz’s 3QFY21 core net profit jumped by 366.4% YoY to RM7.3m, mainly due to the increase in sales volume and higher selling price of certain products. Cumulative 9MFY21 core net profit of RM20.1m were in-line with our but above consensus estimates, making up 76% and 82% of our full-year forecast respectively. In light of the disruption in manufacturing operations since the implementation of Movement Control Order (MCO) 3.0 in June 2021 and a rising raw material cost, we are adjusting our forecast for FY21-23F downwards by 3-12%. Nevertheless, we are still positive on Homeritz’s long-term outlook, supported by robust demand for furniture especially from the America region. Our Outperform call on Homeritz is maintained with a slight reduction in TP to RM0.82 (from RM0.85) based on a 12x of CY22F EPS.

• 3QFY21 revenue surged by 94.3% YoY to RM47.4m, attributable to the increase in volume sold, higher selling prices as well as the low base effect with last year’s performance affected by the initial wave of Covid-19 outbreak. We believe that the stronger sales were mainly driven by the growth in exports to all regions especially the America region. On a QoQ basis, revenue fell by 19.3%, owing to the temporary stoppage of the manufacturing facilities as some employees were tested positive for Covid-19.

• 3QFY21 core net profit jumped by 366.4% YoY to RM7.3m, on the back of the higher economies of scale from the increase in production output. In addition, the increase in average selling prices has helped to mitigate the impact of the hike in raw materials and the depreciation of USD. As a result, Homeritz’s core net profit margin grew by 5.7% to 15.4% (3QFY20: 9.7%).

• Outlook. We are anticipating Homeritz to post weaker earnings in 4QFY21 as the group’s manufacturing operations were halted from June following the implementation of the Nationwide FMCO. Nevertheless, we gather that Homeritz is looking to resume its manufacturing operations in the middle of September after all of its workers become fully vaccinated. While Homeritz’s near-term outlook remains challenging, we are still confident on its long-term prospects, supported by the strong furniture demand as we gather that its current production lead time is at least 180 days (previously was around 120- 150days). Furthermore, Homeritz continues to remain focused on increasing automation to increase productivity and lower labour cost.

Source: PublicInvest Research - 30 Aug 2021