Poh Huat’s 2QFY23 headline net profit fell by 81.6% YoY to RM4.3m, as its main customers continue to destock its inventory as well as a decline in furniture spending. After stripping out non-core items, Poh Huat’s 2QFY23 core net profit came in at RM1.8m, bringing its cumulative 1HFY23 core net profit to RM16.5m. Results were below our and consensus estimates, accounting for 29% of our full-year estimates. The discrepancy in our forecast was mainly due to the lower-than-expected spending on furniture. We slash our earnings forecast for FY23F-25F by 23-42%, to account for the decline in household spending. Our TP is reduced to RM1.16 after rolling over our valuation base year to 7x CY24F EPS. Maintain Neutral. On a side note, Poh Huat declared a first interim dividend of 3 sen.

• 2QFY23 revenue declined by 48.9% YoY to RM95.3m. The lower turnover was mainly due to the de-stocking in inventories among Poh Huat’s clients especially in the US and a normalization in household spending following a spike in furniture sales during the Covid-19 lockdown period. Malaysia operations (-38.9% YoY) saw its revenue falling at a smaller quantum compared to Vietnam operations (-56.6% YoY), likely attributable to the better demand for panel-based office furniture.

• 2QFY23 core net profit fell by 91.2% YoY to RM1.8m, after adjusting for a forex gain of RM2.4m. In line with the decline in sales, Poh Huat saw its GP margin fell to 15.3% (2QFY22: 21.5%). Additionally, GP margin was also affected by the increase in raw material price and weaker economies of scale.

• Outlook. Although Poh Huat will likely benefit from the strengthening of the USD, we think that the positive impact will not be able to sufficiently cushion the decline in furniture demand. We continue to foresee weaker earnings from Poh Huat, as furniture demand is expected to remain sluggish, given the soft property market especially in the US amidst the rising interest rates environment. Cumulative 4MCY23 US New Home Sales decline by c.10% to 2.6m units.

Source: PublicInvest Research - 27 Jun 2023