Results

• In line. Homeritz?s adjusted 1HFY17 PATAMI of RM14.8m (-12.5% yoy) came in within our expectation, accounting for 49.3% of HLIB full year estimate.

Deviations

• Broadly in line.

Dividends

• Declared first tier DPS of 1 sen. For the full-year, we are projecting a total DPS of 3 sen, translating to dividend yield of 3.2%.

Highlights

• YoY? Although revenue rose by 0.6% to RM42.7m, 2QFY17 adjusted PATAMI fell by 5.7% to RM7.6m (from RM8.1m in 2QFY16), as higher revenue was more than offset by higher marketing expenses (Homeritz participated in ?IMM Cologne Fair 2017? back in Jan-17).
• QoQ? The company recorded a 2% increase in revenue and adjusted PATAMI also soared by 5.3% to RM7.6m. Sales only increased marginally QoQ basis as 2Q is usually seasonally lower due to prolonged festive holidays.
• YTD? Despite a marginally higher revenue (+1.8%), 1HFY17 adjusted PATAMI declined by 12.5% to RM14.8m as the company faced higher labour cost (both in terms of increased in number of labour and higher wages) and higher marketing expenses.
• We remain positive on Homeritz ?s potential over the long term, as the 6th factory has been partially running since Dec 2016. We believe that the company will be able to deliver higher capacity by 2H17. Besides, we expect Homeritz to have a plentiful harvest from its effort in active exhibition participation this year.

Risks

• Strengthening of MYR against the US$ (ceteris paribus, every 10 sen increase in MYR against the US$ will result in 7% decline in our FY17 earnings forecast); high raw material prices (in particularly, leather and log costs, which account for 44% of production cost); high labour costs; and unexpected economic downturn.

Forecasts

• Maintained.

Rating

Maintain BUY, TP: RM1.18↑

• We continue to remain positive on Homeritz mainly because the company is still on expansion mode. US$ strength will provide a favourable environment for Homeritz to mitigate rising cost of doing business.

Valuation

• We maintain our BUY recommendation with a higher target price of RM1.18 (preciously RM1.15) as we roll over our valuation to CY18 EPS (based on unchanged P/E multiple of 11x).

Source: Hong Leong Investment Bank Research - 28 Apr 2017