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