Homeritz’s 3QFY23 headline net profit fell 44.7% YoY to RM6.2m, primarily attributed to a decline in sales volume in Asia and Malaysia regions. After stripping out non-core items, Homeritz’s core net profit came in at RM5.2m. Cumulative 9MFY23 results were within both our and consensus estimates at 80% and 74% respectively. We understand that the group has been actively participating in KL and China furniture exhibitions, which should help in securing orders from new and existing clients. Although this is expected to contribute positively to the group’s bottomline, impact is not likely to be significant, in our view. The overall furniture demand remains sluggish in the near term due to the current high interest rate environment. All told, we keep our earnings forecast for FY23-25F unchanged and reiterate our Neutral call on Homeritz and remain our TP of RM0.48 based on a 9x PE multiple.

• Results review. Homeritz’s 3QFY23 revenue dropped 41.4% YoY to RM37.9m. The weaker set of results was mainly due to a ~10% decline in export sales in both the Asia and Malaysia regions and a lower utilisation rate of 50%. In tandem with lower production volume, PBT dropped 51% YoY to RM7.7m, while net profit fell 44.7% YoY to RM6.2m, given the weaker economies of scale. Notably, we observed that Homeritz’s PBT has improved 11.5% QoQ to RM7.7m in 3QFY23, mainly driven by appreciation in the USD/MYR exchange rate.

• Outlook. We remain cautious on the group’s near-term outlook due to the prevailing elevated interest rate environment, which has negatively impacted the property market and led to a decline in furniture demand. The production lead time has dropped to 45 days (pre-covid: 90 days). Nevertheless, the favourable exchange rate and the group’s initiatives to participate in home exhibitions should help secure more orders and partially mitigate the decline in furniture demand.

Source: PublicInvest Research - 31 Jul 2023