Homeritz’s 2QFY23 headline net profit fell by 46.2% YoY to RM5.6m, mainly due to the high base effect in 2QFY22 and lower sales volume. After stripping out non core items, Homeritz’s core net profit came in at RM5.3m. Cumulative 1HFY23 results were below our and consensus estimates, accounting for 43% of our full year forecasts. The discrepancy in our numbers was mainly due to the weaker-than-expected export sales. We cut our earnings forecast by 17-22% for FY23- 25F, as we lower our sales assumption. We foresee Homeritz’s outlook to remain challenging, given the sluggish demand for home furniture due to the rising interest rates environment. We roll forward our valuation base year to CY24 EPS and maintain our Neutral call on Homeritz with a lower TP of RM0.48 (previously RM0.53), based on a 9x PE multiple.

• Results review. Homeritz’s 2QFY23 revenue dropped by 42.2% YoY to RM39.8m. The weaker set of results was mainly dragged by the decrease in export sales and the higher base effect as Homeritz ramped up its production in 2QFY22 as production was halted temporarily during the Movement Control Order 3.0. In tandem with the lower production volume, Homeritz saw its net profit fell by 46.2% YoY to RM5.6m, given the weaker economies of scale.

• Outlook. We expect Homeritz to deliver weaker earnings in 2HFY23, as we are still cautious on the group’s near-term outlook, given that the elevated interest rate environment has affected the property market, thus leading to a decline in furniture demand. Furthermore, we think that the home furniture demand that was spurred by work-from-home (WFH) arrangement previously had tapered off with many employees returning back to office. Nevertheless, the favourable exchange rate should help to partially mitigate the decline in furniture demand. All told, we are projecting a 42% YoY decline in Homeritz’s FY23F core net profit given the challenging outlook.

Source: PublicInvest Research - 17 Apr 2023