Homeritz’s FY22 headline net profit jumped by 83.5% YoY to RM41m, attributed to greater economies of scale given the increase in export volume, and further supported by the strengthening of the USD. After adjusting for exceptional items of RM6.0m, Homeritz’s FY22 core net profit came in at RM35.2m. Results were above our and consensus forecast, accounting for 108% and 106% of full-year numbers respectively. However, we make no changes to our earnings forecast for FY23-24F, as we think that the strong furniture demand is not sustainable due to pronounced inflationary pressures whereby consumers will likely pivot spending towards consumer staples. Our Neutral call and TP of RM0.53 based on 9x CY23 EPS is maintained.

• Results review. Homeritz saw its 4QFY22 revenue surge 710% YoY to RM51.1m, mainly driven by the strengthening of the USD and increase in sales volume. The better performance was also due to low base effects, with the previous year affected by Covid-19 related movement restrictions. Recall that furniture manufacturing was halted from 1st June 2021 during Movement Control Order 3.0. In tandem with the increase in production efficiency, Homeritz’s headline net profit grew from RM0.3m to RM11.0m. On a QoQ basis, Homeritz’s revenue declined by 21% however, dragged by weaker export sales.

• Dividend. Homeritz proposed a final interim dividend of 1sen, bringing the total dividend declared for FY22 to 2.0sen. This translates to an attractive dividend yield of 3.7%.

• Outlook. We understand that Homeritz is in the midst of bringing in more foreign workers which could lead to an increase in production efficiency. However, we remain cautious over Homeritz’s future outlook given the decline in revenue likely dragged by the weaker export demand amid global inflationary pressures. Going forward, we think that the strong furniture demand that was fuelled by work-from-home arrangements will taper off given the slowdown in global growth, and concerns of an impending global recession, which should see consumers prioritising staple products over discretionary items.

Source: PublicInvest Research - 31 Oct 2022