Homeritz’s 1QFY23 headline net profit fell by 25.5% YoY to RM6.3m, mainly dragged by lower sales volume. After adjusting for non-core items, Homeritz’s core net profit came in at RM6m. Results were in-line with our and consensus estimates, accounting for 23% and 21% respectively. We adjust our earnings forecast for FY23-25F upwards by an average of 1% due to housekeeping changes. We remain cautious over Homeritz’s short term outlook, as we foresee near-term earnings weakness, due to softer home furniture demand with employees returning back to office and weaker housing market on rising interest rates. As such, our Neutral call and TP of RM0.53 based on 9x CY23F EPS is maintained.

• Results review. Homeritz’s 1QFY23 revenue decreased by 33.5% YoY to RM38.9m, mainly affected by the weaker furniture demand and normalization in production as Homeritz ramped up its production in 1QFY22 to deliver orders that was delayed previously due to Movement Control Order 3.0. On the contrary, despite recording lower sales volume, Homeritz’s net profit margin expanded by 1.7ppts, likely attributable to the favourable forex rate. Homeritz’s revenue fell by 23.9% QoQ, dragged by a decrease in sales volume given the slower consumer demand.

• Outlook. While Homeritz could potentially benefit with furniture buyers diverting its orders from China to the South East Asian region, we think that the positive impact could be short lived, with the industry facing near-term headwinds. This is mainly due to softer consumer consumption and the decline in housing market amid rising interest rates. We believe that with employees returning back to office, home furniture demand that was boosted by work-from-home arrangements previously will taper off. Furthermore, we think that the reopening of international borders will lead to a shift in consumer spending, focusing on experiences (dine in and travelling) rather than goods.

Source: PublicInvest Research - 18 Jan 2023