• Maintain HOLD (TP: RM1.42). Rhong Khen International (RKI) witnessed a decline of 24.5% YoY in its revenue during the 9MFY24, attributed to lower sales recorded across all divisions of the group, as demand from our main export market, the United States, remained slow and weak. Nonetheless, the company reported a better net profit of RM13.6mn, up by 4.7% YoY due to reversal of over provision of tax expense in prior years in FY24 compared to FY23. RKI's bottomline performance met our expectations but surpassed consensus estimates, representing 75.8% and >100% of the forecast for FY24, respectively. We maintain a HOLD call with a higher TP of RM1.42 (from RM1.37) as we roll forward our valuation. Note that our current TP is derived from a 5-year average historical forward PE ratio of 14.8x and a projected FY25F EPS of 9.6sen.

• Key highlights. In 3Q24, RKI’s top-line plunged by 26.5% QoQ to RM114.8mn on the back of lower sales recorded by furniture plants in Vietnam, due to fewer operating days this quarter in conjunction with the Chinese Lunar New Year holiday. On top of that, lower sales recorded by Malaysia's sawmill and panel board lamination plants due to decrease demand from local and export markets this quarter.

• Forecast. No changes to our forecast.

• Outlook. We opine that the near-term outlook for the furniture industry remains challenging, with subdued orders from U.S. customers due to excess inventory. Note that in April, U.S. existing home sales unexpectedly declined as higher mortgage rates and house prices dampened demand, further impacting the housing market. According to the National Association of Realtors (NAR), home sales dropped by 1.9% last month to a seasonally adjusted annual rate of 4.14mn units. Despite these challenges, we remain positive about RKI’s long-term outlook, as the strengthening of the USD is expected to boost future sales.

Source: BIMB Securities Research - 28 May 2024