Results

• In Line. 1QFY18 core PATAMI of RM6.9m (yoy: -7.9%; qoq: +0.9%) accounted for 23.4% of our full year forecast. We deem the results within our expectation as we expect stronger quarters ahead, underpinned by stronger sales volume.

Deviations

• Broadly in line.

Dividends

• No dividend was declared.

Highlights

• YoY… 1QFY18 revenue rose by 9.7% mainly due to higher sales volume (number of containers sold increased by 5.4%). However, core PATAMI fell by 7.9% to RM6.9m, due to higher raw material costs (in particularly, wood, foam and carton boxes).
• QoQ… 1QFY18 revenue was higher by 15.5%, while core PATAMI rose 0.9% to RM6.9m as higher sales volume (number of containers sold increased by 14.0%) was weighed down by a lower US$ vs. MYR (RM4.18/US$ in 1QFY18 vs. RM4.27/US$ in previous quarter) and higher raw material costs.
• Moving forward, we opine that Homeritz will continue to improve cost efficiencies (via effective trainings for the workers and continuously seeking for automation opportunities). We also note that, the company will be purchasing new machines this year to increase efficiency. Risks
• (1) Sharper-than-expected rise in MYR against the US$ (ceteris paribus, every 10 sen increase in MYR against the US$ will result in 7.3% decline in our FY18 earnings forecast); (2) Higher-than-expected raw material prices (in particularly, leather and log costs, which account for 44% of production cost); and (3) Escalating labour costs. Forecasts
• Unchanged

Rating

Maintain HOLD, TP: RM1.00↑

• We remain positive on Homeritz mainly because the company is still on an expansion mode and there is a 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 HOLD recommendation with an unchanged target price of RM1.00 based on 10x unchanged CY18 EPS of 9.96 sen.

Source: Hong Leong Investment Bank Research - 26 Jan 2018