Results

• Homeritz’s 1HFY15 revenue of RM71.2m (+11% yoy) translated into PATAMI of RM10.8m and accounted for 44% of our full year estimation (versus average of 42% of full year earnings).

Deviations

• We deem the earnings in line with our expectations as 2Q has always been the weakest quarter for the group due to seasonality. Historically, 2Q represents on average 19% of full year earnings (versus 26% of our full year estimation for the current quarter).

Dividends

• None.

Highlights

• 1HFY08/15 review… The group achieved revenue of RM71.2m, an increase of 11% yoy, mainly due to growth in volume of sales and stronger USD. 2Q is seasonally weaker quarter for the group due to festivals (Christmas, New Year, Chinese New Year etc.). Its PATAMI improved 4% yoy, from RM10.4m in 1HFY14 to RM10.8m in 1HFY15, despite the absence of its pioneer status tax incentive.

• 2QFY15 review… Despite the seasonally weaker quarter, revenue increased 13% qoq. PBT was up 52% to RM9.4m in 2QFY15, from RM6.2m in 1QFY15 . The improved performance in 2QFY15 compared to 1QFY15 was attributed by the stronger revenue generated, strengthening USD and lower raw material cost arising from lower price of leather.

• USD plays… Despite recent strengthening in ringgit against USD, the group could still benefit from strong USD as our base case forecast for revenue and net profit for FYE15 assumes an average exchange rate of RM3.50/USD vs average of RM3.24/USD achieved in FY14. Sensitivity analysis shows that every RM0.10/USD appreciation will boost FY15 net profit by about 6%.

• Strong earnings and balance sheet… Homeritz’s revenue and PATAMI are expected to grow at CAGR of 8% and 14% respectively from FY14 to FYE16. The Group has net cash per share of 23 sen and attractive dividend yield of 4.8% with 40% dividend policy.

Risks

• USD weakness; high raw material prices; high labour costs; unexpected economic downturn; and production or operational risks.

Forecasts

• Unchanged.

Rating

BUY

• We maintain our BUY call on Homeritz due to beneficiary of stronger USD, increasing consumer demand in global market, margin expansion and solid earnings base.

Valuation

• We use 10x P/E which is premium to the furniture industry average P/E of 8x as we forecast the Group’s CAGR growth at 14%. Hence, we derive to a fair value at RM1.54.

Source: Hong Leong Investment Bank Research - 30 Apr 2015