Poh Huat’s 1QFY23 headline net profit fell by 55.5% YoY to RM6.8m, as both Malaysia and Vietnam operations saw a decline in orders from its main customers in the North America region. After adjusting for non-core items, Poh Huat’s core net profit of RM14.7m was in-line with our and consensus estimates, accounting for 26% of our forecasts. We are expecting Poh Huat’s near-term earnings to remain weak as US furniture retailers scale back on their orders given a softer consumer demand, dragged by higher cost of living and interest rates. We remain our Neutral call and TP of RM1.50 based on 7x CY23 EPS.

• 1QFY23 revenue decreased by 34.7% YoY to RM119.5m, as Poh Huat’s main buyers in the North America adjusted its procurement and inventory level to reflect sluggish furniture demand. As such, revenue from both Malaysia and Vietnam operations fell by 22.9% and 46.7% YoY respectively. Vietnam operations which focused on the home furniture segment experienced a greater decline in sales, in-line with the weaker property market in the US. In addition, shipment was also affected by lower production days amidst Chinese New Year holiday in Jan 2023.

• 1QFY23 core net profit lowered by 2.5% YoY to RM14.7m, after adjusting for disposal gain and forex loss. Despite the lower revenue, Poh Huat’s GP margin fell by a smaller quantum (-1.4ppts) to 22.3%, on better utilisation of raw materials and lower labour cost.

• Outlook. While Poh Huat will continue to benefit from a stronger USD, we believe that the impact of favourable forex rate will not be able to sufficiently offset the sluggish furniture demand. This is because a rising interest rate has affected the property market with the US New Home Sales declined by 17% YoY in CY2022 to 7.7m units. Therefore, we think that Poh Huat’s near-term outlook remains challenging and are projecting Poh Huat’s core net profit to fall by -27% YoY in FY23F.

Source: PublicInvest Research - 20 Mar 2023