PublicInvest Research

Poh Huat Resources Holdings Berhad - Expecting Weaker Demand Ahead

PublicInvest
Publish date: Fri, 30 Sep 2022, 10:32 AM
PublicInvest
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An official blog in I3investor to publish research reports provided by PublicInvest Research team.

All materials published here are prepared by Public Investment Bank Berhad. For latest offers on Public Invest trading products and news, please refer to: https://www.publicinvestbank.com.my/pbswecos/default.asp

PUBLIC INVESTMENT BANK BERHAD (20027-W)
9th Floor, Bangunan Public Bank
6, Jalan Sultan Sulaiman, 50000 Kuala Lumpur
T 603 2031 3011 | F 603 2272 3704 | Dealing Line 603 2260 6718

Poh Huat’s 3QFY22 headline net profit rose by 64.2% YoY to RM22m, driven by the stronger contribution from its Malaysia operations. After adjusting for non-core items, Poh Huat’s core net profit came in at RM20.6m. Cumulative 9MFY22 core net profit were above our and consensus expectations, accounting for 97% and 91% respectively. The discrepancy in our numbers was mainly due to the stronger-than-expected profit margins. We raise our FY22F forecast by 28%, mainly to account for the greater operational efficiency. However, we cut our earnings forecast for FY23-24F by an average of 10%, as we are anticipating a weaker demand on the back of rising interest rates. Thus, we believe the strong margin may not be sustainable moving into FY23-24F. Following our earnings adjustment, our TP is lowered to RM1.50, based on 7x CY23 EPS close to its average 5-year forward PE. Given the limited upside potential, we downgrade our call from Outperform to Neutral.

  • 3QFY22 revenue increased by 9.2% YoY to RM166.5m. Malaysian sales grew by 190.3% YoY on the back of sustained demand and low base effect as production was halted due to MCO 3.0. Meanwhile, turnover from its Vietnam operations declined by 32.9% YoY, dragged by lower orders from its US customers as a result of excessive stockpile.
  • 3QFY22 core net profit jumped by 61.6% YoY to RM20.8m, as Malaysia operations managed to turnaround from a Loss Before Tax given the absence of production disruptions. However, Vietnam operations reported lower profit margins due to lower production efficiency (3QFY22: 12.1% vs 3QFY21: 14.1%).
  • Dividend. Poh Huat declared a second Interim dividend of 2.0sen, bringing the YTD dividend declared to 4.0 sen, representing a dividend yield of 2.9%
  • Outlook. Although Poh Huat might benefit from the trade diversion as a result of US-China trade war, we think that the positive impact would be short-lived, as the rising interest rate environment should result in a weaker demand owing to the slowdown in housing market and consumer discretionary spending.

Source: PublicInvest Research - 30 Sept 2022

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