Wegmans’ 2QFY23 headline net profit declined by 45.9% YoY to RM3.6m, as furniture demand continued to be affected by the rising interest rates. After adjusting for gain on foreign exchange, Wegmans core net profit came in at RM2.6m, bringing 1HFY23 core net profit to RM2.4m. We deem the results to be below expectations, as it accounts for 29% of our full-year estimates. The discrepancy in our numbers was mainly due to the weaker-than-expected sales volume. Due to an absence of significant re-rating catalyst in light of a declining furniture demand dragged by the rising inflationary pressure, we are ceasing our coverage on Wegmans. Our last call and target price are Underperform and a TP of RM0.15, based on a PE multiple of 8x FY24F EPS.

• Results review. 2QFY23 revenue fell 28.5% YoY to RM29.7m, mainly dragged by lower sales volume from its furniture segment (-35.8% YoY). Export sales remain weak, especially to the North America region, which saw a 34.9% YoY decrease in sales. We attribute this to prudent consumer spending amid high inflation. Wegmans saw its core net profit declined by 45.9% YoY, due to lower sales volume and higher effective tax rate.

• Outlook. We foresee Wegmans’ earnings will continue to be affected by the softer furniture demand given the weaker property market, dragged by the rising inflationary pressure. We believe that consumers will likely remain prudent with their spending by focusing more on consumer staple goods. That being said, given the lack of re-rating catalyst as headwinds continue to cloud the furniture industry, we are ceasing coverage on Wegmans.

Source: PublicInvest Research - 29 Aug 2023