• Maintain HOLD (TP: RM1.34). Rhong Khen International (RKI) core net profit of RM15.4mn (-63% YoY) was below our and consensus estimates, representing 85% and 91% of the forecast, respectively. The main deviation against our forecast was mostly due to lowerthan-expected furniture sales in FY24. We reduced our earnings forecasts for FY25F/FY26F/FY27F by -5.9%/-7.0%/-6.9% after revising our sales growth assumptions downward. We maintain a HOLD call with a lower TP of RM1.34 (from RM1.42). 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 9.0sen.

• Key highlights. In 4Q24, RKI’s top-line grew by 13.4% QoQ to RM130.1mn on the back of improved sales by a furniture plant in Vietnam due to higher shipment in current quarter. However, the group recorded core net loss of RM2.8mn due to higher tax provision made in current quarter. For FY24, RKI witnessed a decline of 19.7% YoY to RM521mn in its revenue. This is attributed to lower sales recorded as demand from the US which is its main export market remained slow and weak. Consequently, the company reported a lower core net profit, down by 63.1% YoY to RM15.4mn.

• Forecast. We have reduced our earnings forecasts for FY25F/FY26F/FY27F by -5.9%/-7.0%/-6.9% (refer to Table 2) after revising our sales growth assumptions downward.

• 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 the US housing market saw a slight turnaround in July 2024, with a modest increase in sales for the first time in four months, according to a new report by the National Association of Realtors (NAR). Sales of existing homes rose by 1.3% compared to the previous month, ending four consecutive months of decline. However, the sales of existing homes remain 2.5% lower than a year ago.

Source: BIMB Securities Research - 28 Aug 2024