Poh Huat’s 3QFY23 headline net profit fell by 78% YoY to RM4.8m, due to a decline in customer orders from North America and lower furniture spending. After stripping out non-core items, Poh Huat’s 3QFY23 core net profit came in at RM4.3m, bringing its cumulative 9MFY23 core net profit to RM20.8m. Results were below both our and consensus estimates at 64% and 59% of full year forecasts respectively. The discrepancy in our forecast was mainly due to the weaker-than-expected furniture sales. We maintain our FY23F-25F earnings forecast as we expect 4QFY23 sales to improve due to seasonality factors. Note that 4Q usually accounts for c.30% of Poh Huat’s full-year sales. As such, we retain our Neutral call on Poh Huat with unchanged TP at RM1.16 based on 7x CY24 EPS. On a side note, Poh Huat declared a second interim dividend of 2 sen.

• 3QFY23 revenue declined by 35.5% YoY to RM107.4m. The lower turnover was mainly due to orders held back by clients from North America to clear inventories, following a downturn in US household spending. Revenue for Malaysia and Vietnam operations dropped 32.2% and 38.9% YoY respectively, mainly attributable to a scaled down in Vietnam operation and lower production hours in Malaysia operation.

• 3QFY23 core net profit fell by 78.1% YoY to RM4.3m, after adjusting for a forex gain of RM0.52m. In line with the decline in sales, Poh Huat saw its GP margin falling to 14.7% (3QFY22: 23.2%), due to weaker economies of scale and higher fixed costs (i.e labour costs and factory overheads).

• Outlook. We believe the demand of furniture will remain sluggish in the near term amid high interest rates environment and soaring housing prices. Hence, we continue to foresee weaker earnings in Poh Huat as its main customers are still grappling with a surplus of inventories. Nevertheless, we anticipate a slight uptick in orders for home furnishings due to year-end spending on Christmas festival. We are still positive on Poh Huat’s long term outlook as the strengthening of USD coupled with the group’s strategic initiatives to right-size its operational footprint as well as active engagement with existing customers to develop new range of products offerings should help to translate to better sales in the future.

Source: PublicInvest Research - 27 Sept 2023