Homeritz’s FY23 headline net profit dropped by 36.6% YoY to RM26m, mainly dragged by lower sales volume. After stripping out non-core items, Homeritz’s FY23 core net profit came in at RM23.7m (-32.5% YoY). Nevertheless, the results were above both our and consensus estimates at 116% and 111% respectively. The discrepancy in our forecast was due to the higher-than-expected utilization rate, which improved c.10% QoQ in 4QFY23. We understand that the group had been actively participating in furniture exhibitions to secure new customers within the Asia region, resulting in an increase in sales in 4QFY23. We believe this would have some spillover effect on FY24-25F and as such, we revise up our forecasts by an average of 6.5%. Consequently, our TP is raised to RM0.51 based on 9x CY24F EPS. Maintain Neutral on Homeritz. On a side note, Homeritz has proposed a final single dividend of 1.6sen in FY23 (FY22: 2.0sen), translating into a dividend yield of 3.1%.

• Results review. Homeritz’s 4QFY23 revenue dropped 10% YoY to RM46.0m, largely attributed to a high base effect resulting from the exceptional surge in production due to delayed orders during the period of Movement Control Order 3.0. In tandem with lower production volume, PBT dropped 20.7% YoY to RM10.4m, while net profit fell 27.8% YoY to RM7.9m, given the weaker economies of scale. On a QoQ basis, Homeritz’s revenue increased by 21.5%, attributed to a better overall sales volume in the Asia region and a higher utilization rate of 55%-60% in 4QFY23. Notably, Homeritz’s PBT improved by 35.1% QoQ, mainly driven by appreciation in the USD/MYR exchange rate.

• Outlook. We foresee Homeritz to post better earnings in 1QFY24, mainly supported by year-end spending on Christmas festival while new customers secured in the Asia region should translate to higher sales order in FY24-25F. Nevertheless, we are not expecting utilization rate to rise beyond 70% as furniture demand should remain restrictive given the rising interest rate environment that would weigh on the property market. We are still positive on Homeritz’s long term outlook as the group remains proactive in pursuing new customer prospects, coupled with new product development including new designs for existing products, which should help to improve cost efficiencies and translate into better sales in the future.

Source: PublicInvest Research - 30 Oct 2023