Homeritz’s reported a 15.9% YoY growth in 1QFY22 headline net profit to RM8.5m, due to the strengthening of USD and higher selling prices. After adjusting for forex gain, Homeritz’s core net profit came in at RM7.4m. Results were in line with our and consensus estimates, accounting for 26.9% and 26.6% of full-year forecasts respectively. We believe that the worst is over for Homeritz and continue to remain optimistic on its future outlook, underpinned by the strong orderbook, capacity expansion and better production efficiency as well as the robust furniture demand driven by work-from-home arrangements. As such, we reiterate our Outperform call on Homeritz with an unchanged TP of RM0.82 based on a 12x CY22F EPS.

• Results review. Homeritz’s 1QFY22 revenue increased by 11.4% YoY to RM58.5m, mainly due to the favourable foreign exchange rate and the increase in selling prices of certain products. Note that for the current quarter, Homeritz’s actual production was for 2.5months as the group had only resumed operations in mid of September 2021 due to FMCO restrictions. In tandem with the stronger revenue, the group’s PBT grew by 19.2% YoY to RM10.9m. Homeritz’s PBT margin improved to 18.7% (1QFY21: 17.5%), as the impact of the rising raw materials cost was cushioned by the adjustment in selling price of certain products.

• Outlook. We remain optimistic on Homeritz’s outlook, mainly supported by increase in production capacity and efficiency contributed by its new factory, strong orderbook (c.120-150 days) and the robust furniture demand, especially from the US region. We understand that the new plant is expected to increase Homeritz’s capacity by 20% to c.300 containers a month. Meanwhile, the robust demand is driven by the increase in home furnishing spending as people are spending more time at home due to work-from-home arrangements and the trade diversion from the US-China trade war. While the group will likely face cost pressure given the rising raw material costs, we understand that as an Original Design Manufacturer, it provides an advantage for Homeritz as it is able to adjust its selling price with new designs to cushion the impact of rising material cost.

Source: PublicInvest Research - 26 Jan 2022