Homeritz’s 1QFY24 headline net profit increased by 43.4% YoY to RM9.1m, primarily attributed to higher sales volumes due to festive spending. After adjusting for non-core items, Homeritz’s core net profit came in at RM8.2m (+36.2% YoY). Results were above both our and consensus estimates at 32% and 31% respectively. The discrepancy in our forecast was due to the higher-than-expected sales volume in the Asia region. While the group has been actively participating in furniture exhibitions (Germany, Vietnam and Guang Zhou) to strengthen relationship with existing customers and seek new customers, we think that it is not likely to have any meaningful impact on earnings. Given a high interest rate environment, we expect furniture demand to remain sluggish in the near term. All told, we keep our earnings forecast for FY24F-26F unchanged and reiterate our Neutral call on Homeritz, with unchanged TP of RM0.51 based on a 9x PE multiple.

• Results review. Homeritz’s 1QFY24 revenue increased 38.1% YoY to RM53.8m. The stronger set of results was largely due to an increase in exports sales mainly in the Asia region and a higher utilisation rate of 70% in 1QFY24, compared to 50% in 4QFY23. In tandem with higher production volume, Homeritz’s PBT increased 46.3% YoY to RM12.3m, while net profit was up 43.4% YoY. Notably, we observed that Homeritz’s PBT margin has improved 1.3 ppts YoY, mainly driven by appreciation in USD/MYR exchange rate.

• Outlook. We remain cautious on the group's near-term outlook as we expect interest rates to remain elevated on high inflationary pressures. We believe this would continue to dampen furniture demand going forward. Despite the challenging near-term outlook, we are still optimistic on the group's long-term prospects, stemming from its commitment to develop new products and innovative designs to cater to a more diverse customer base. The group is also actively looking to streamline its cost by diversifying into a wider network of suppliers which should help to lower input cost.

Source: PublicInvest Research - 23 Jan 2024