Poh Huat’s 4QFY23 headline net profit fell by 54.2% YoY to RM10.8m, mainly attributable to reduced sales orders, reflecting subdued spending trends in the US. After stripping off non-operating items, Poh Huat’s 4QFY23 core net profit came in at RM4.5m, bringing its full-year FY23 core net profit to RM25.3m. Results were below both our and consensus estimates at 77% and 78% of full year forecasts respectively. The discrepancy in our forecast was mainly due to the weaker-than-expected furniture sales. We cut our FY24-25F earnings forecast by 21%-23%, as we expect orders to remain weak in FY24. As such, we downgrade our call on Poh Huat from Neutral to Underperform, with a lower TP at RM1.05 based on 8x CY24 EPS. On a side note, Poh Huat has proposed a final dividend of 2sen per share.

• 4QFY23 revenue declined by 36.7% YoY to RM105.9m. The lower turnover was mainly attributed to a decline in shipments due to reduced spending on furniture among the US household. Revenue for Malaysia and Vietnam operations dropped 29% and 44% YoY respectively, due to a scale back in sales order from North America in response to weakened market demand.

• 4QFY23 core net profit fell by 78.3% YoY to RM4.5m, after adjusting for non-core operating items. In tandem with the decline in sales, Poh Huat’s GP margin fell to 16.8% in 4QFY23 (4QFY22: 23.7%), mainly due to weaker economies of scale and higher fixed costs (i.e labour costs and factory overheads). On a QoQ basis, Poh Huat’s Malaysia and Vietnam operations recorded a surge of 129% and 173% QoQ in PBT to RM11.6m and RM3.1m respectively in 4QFY23, mainly driven by higher forex gains on strengthening of USD and Vietnamese Dong currency.

• Outlook. The furniture industry landscape remains challenging in the near term, marred by weaker orders from US customers due to surplus of inventory. We observed that Malaysia wooden furniture exports reported a drop of 25.4% YoY to RM6.5bn in 9MCY23. Meanwhile, the US housing market has been impacted by elevated mortgage rates, leading to a 5% QoQ decline in US new home sales to 679,000 units in Oct 2023, mainly due to high mortgage rates which constrained purchases, despite builders implementing price reductions. All told, we downgrade our call on Poh Huat to Underperform.

Source: PublicInvest Research - 15 Dec 2023