Results

• In Line. FY17 core PATAMI of RM29.4m (+6.4% yoy) came in within our expectation, accounting for 98% of our full year forecast.

Deviations

• Broadly in line.

Dividends

• Declared final DPS of 2.2sen, bringing YTD DPS to 4.2 sen (translating to dividend yield of 4.4%).

Highlights

• YoY… 4QFY17 revenue and core PATAMI rose by 16.9% and 48.3% to RM39.7m and RM6.7m respectively, mainly due to an increase in sales volume by 11% and the strengthening of US$ against MYR (by about 6% from RM4.01/US$ to RM4.27/US$).
• QoQ… 4QFY17 recorded an 11.1% decline in revenue, and a 15.6% decline in core PATAMI, which mainly attributed by lower sales volume 6% and weaker US$ against the MYR (by 2% to RM4.27/US$ from RM4.36/US$/US$ a quarter ago).
• YTD… FY17 core PATAMI increased by 6.4% to RM29.4m mainly due to the increase in sales volume by 3% and the strengthening of US$ against MYR by 4%.
• We remain positive on Homeritz as the company continues to improve cost efficiencies (via effective trainings for the workers and continuously seeking for automation opportunities). Besides, we expect Homeritz to have a plentiful harvest next year from its effort in active exhibition participation this year.

Risks

• (1) Strengthening of MYR against the US$ (ceteris paribus, every 10 sen increase in MYR against the US$ will result in 7.3% decline in our FY17 earnings forecast);
• (2) High raw material prices (in particularly, leather and log costs, which account for 44% of production cost); and
• (3) Escalating labour costs.

Forecasts

• Maintained our FY18-19 earnings forecast and we also take this opportunity to introduce FY20 core earnings forecast at RM 36.8m.

Rating

Maintain BUY, TP: RM1.18↑

• We remain positive on Homeritz mainly because the company is still on expansion mode and stable growth in the global furniture market arising from the growing real estate industry and increasing number of global retail stores.

Valuation

• We maintain our BUY recommendation with a unchanged target price of RM1.18 based on 11x unchanged CY18 EPS of 10.7 sen.

Source: Hong Leong Investment Bank Research - 31 Oct 2017