Poh Huat posted headline net profit of growth of 16.4% YoY to RM13.4m for 3QFY21, mainly driven by the stronger performance from its Vietnam operations. Stripping out one-off items, cumulative 9MFY21 core net profit came in at RM35.6m. The results were below our and consensus estimates, accounting for 67% of our and consensus full-year forecasts. The discrepancy in our numbers was mainly due to the weaker-than-expected contribution from Malaysian operations, given the longer-than-expected production interruption due to the implementation of the Full Movement Control Order (FMCO). We adjust our earnings estimate downwards for FY21-23F by 4-10%, mainly to reflect on the production interruptions and increasing freight charges resulting in a delay in orders from its customers. Nevertheless, we are still optimistic on Poh Huat’s outlook, as the demand for home and office furniture from the US remains strong. We maintain our Outperform call on Poh Huat with a lower TP of RM2.07 (previously RM2.20) based on a 10x multiple pegged to CY22 EPS.

• 3QFY21 revenue increased by 14.8% YoY to RM152.5m. The better performance was mainly underpinned by the stronger sale orders from its Vietnam’s operations as the group ramped up its operations before the production halt. As a result, revenue from its Vietnam’s operations grew by 68.4% YoY to RM123.7m. Note that Poh Huat’s Vietnamese operations were halted since 19th July 2021. On the other hand, revenue from its Malaysia’s operations fell by 51.5% to RM28.8m, as productions were halted due to the implementation of the FMCO.

• 3QFY21 PBT grew by 13.6% YoY to RM15.8m. Vietnam’s operations saw an improvement in its PBT margin to 14.1% (3QFY20: 6.6%), thanks to the better operational efficiency given the higher levels of production. Meanwhile, Malaysia operations slipped into the red, as the FMCO interruption had resulted in a disproportionately higher absorption of fixed factory overheads and labour costs.

• Future prospects. We believe that the near-term outlook remains challenging for Poh Huat as its operations in Vietnam were adversely affected by the lockdown that was implemented. On the bright side, we understand that its Malaysian operations have resumed full operations since 11th Sept 2021, and the group is looking to apply with the relevant authorities in Vietnam to resume production with a 30% workforce next month. We are expecting a better outlook for Poh Huat in FY22, given the strong orders from its US customers, supported by the low interest rates and the increase in home furnishing spending given the work-from-home trend will continue to boost demand for furniture moving forward.

Source: PublicInvest Research - 29 Sept 2021