Poh Huat’s 1QFY24 headline net profit increased by 50.9% YoY to RM10.3m, mainly attributed to the uptick in orders from US customers, driven by inventory replenishment efforts. After stripping off non-operating items, Poh Huat’s 1QFY24 core net profit dropped 27.9% YoY to RM10.6m. The results were within market expectations at 26.5% but above our expectations at 31.2%. The discrepancy in our forecasts were mainly due to higher-than-expected orders from US customers. Though recent quarter has shown improvement in sales volume from US customers, we take a cautious stance as we believe demand for furniture would take a longer time to recover in this prolonged high interest rate environment. All told, we reiterate our Underperform call on Poh Huat, and remain our FY24-26F earnings forecast, with unchanged TP of RM1.05 based on 8x CY24 EPS.

• 1QFY24 revenue increased by 9.7% YoY to RM131.1m. The higherturnover was mainly attributed to replenishment of inventories by UScustomers. Revenue for Malaysia and Vietnam operations improved 4.3%and 17.7% YoY respectively, mainly due to improving sales order for panelbased home products and bedroom sets products. We gather that theutilization rate has improved to c.60%-70% in 1QFY24 (4QFY23: 60%),attributable to the increasing sales volume.

• 1QFY24 core net profit fell by 27.9% YoY to RM10.6m, after adjusting fornon-core operating items. Poh Huat’s GP margin fell to 19.8% in 1QFY24(1QFY23: 22.4%), mainly due to higher labour cost on overtime expenses.On a QoQ basis, Poh Huat’s PBT dropped 9.1% QoQ mainly due to a bumpin net other income of RM10.5m in previous quarter 4QFY23, driven byhigher forex gains on strengthening of USD.

• Outlook. The US furniture market is currently undergoing a gradualrecovery phase, characterized by importers and retailers taking measuresto clear their surplus inventories. However, we observe that the freight ratesremain high at above pre-pandemic levels which would lead to a squeeze inmargins going forward. With Fed officials indicating no rush in cutting interestrates, we believe the recovery of furniture industry would take a longer timegiven an elevated mortgage rate, leading to a slowdown in home sales andhence translating to a reduced demand for furniture and home furnishings.

Source: PublicInvest Research - 1 Apr 2024