Poh Huat reported a 1QFY22 headline net profit growth of 59.4% YoY to RM15.4m, lifted by better profit margins given a higher ASP and lower raw material costs. After adjusting for forex gain of RM0.3m, Poh Huat’s core net profit came in at RM15.1m. Results were above ours but within consensus estimates, accounting for 31% and 27% of full-year forecast respectively. The discrepancy in our numbers was mainly due to lower-than-expected raw material costs. We are adjusting our FY22-24F earnings forecast upwards by 4-7% as we raise profit our margins assumptions on lower raw material costs. We are still positive on Poh Huat’s outlook given the strong furniture demand from the US, driven by the growing remote working trend. Our Outperform call on Poh Huat is maintained, with a higher TP of RM1.65 (previously RM1.60) based on 8x CY22 EPS.

• 1QFY22 revenue was flat YoY at RM182.9m. Malaysia operations grew by 21.9% YoY on the back of higher shipments as Poh Huat ramped up production to fulfill orders. However, the growth was partially offset by the lower sales from its Vietnam operations (-16% YoY), due to the lower shipments given the logistical disruptions and elevated freight costs which caused some delay in shipments.

• 1QFY22 core net profit grew by 35.3% YoY to RM15.1m. Malaysian operations PBT margins improved by 9.9% to 11.1%, likely attributable to the higher economies of scale as production activities returned to normal working level. Recall that, Poh Huat’s Malaysia operations were temporarily affected by Covid-19 outbreak in 1QFY21. Vietnam operations saw its PBT margin improved by 1ppt to 11%, as Poh Huat consumed buffer raw materials sourced earlier in anticipation of a spike in raw material costs.

• Future prospects. We gather that demand from the US is still robust, underpinned by the trade diversion and the growing work-from-home trends. Additionally, we expect Poh Huat’s net profit margin to sustain at about 8% going forward, given the adjustment in ASP as it passes on the rising raw material costs. Also, we understand that the raw materials buffer that was acquired previously will be able to last for a few more months. The group remains committed to improve its productivity with automation as Poh Huat has allocated c.RM10m for machine upgrades. Meanwhile, we think that the strengthening of USD as The Fed raises interest rates are in favour to furniture exporters like Poh Huat. All told, we remain positive on Poh Huat’s future outlook.

Source: PublicInvest Research - 25 Mar 2022