4QFY19 core PATAMI of RM5.0m (QoQ: -14.8%, YoY: -20.9%) brought FY19 core PATAMI to RM20.8m (YoY: -2.7%), which was within our expectation, accounting for 99.3% of our estimate. After rolling over our valuation year from CY19 to CY20, our TP rises to RM0.74 (from RM0.71 previously), based on 10x CY20 EPS of 7.4 sen. While we continue to like Homeritz due to healthy net cash per share per share of 27.2 sen and increased automation efforts, we believe further upside will be capped by its stretched valuations following recent share price outperformance (note that share price has risen by 15.4% since Sep-19).

Within expectations. 4QFY19 core PATAMI of RM5.0m (QoQ: -14.8%, YoY: -20.9%) brought FY19 core PATAMI to RM20.8m (YoY: -2.7%), which was within our expectations, accounting for 99.3% of our full year earnings. One-off adjustments include foreign exchange gains/losses.

Dividend. Proposed final DPS of 1 sen (4Q18: 1.5 sen), bringing full year DPS to 3 sen (FY18: 2.5 sen).

QoQ. 4QFY19 core PATAMI declined by 14.8%% to RM5.0m in tandem with revenue decline of 10.4%. Note that revenue decline was due to lower volumes sold, as the number of containers shipped out decreased by 15% QoQ. Additionally, lower volumes resulted in lower economies of scale.

YoY. Core PATAMI decline of 20.9% and revenue decline of 16.2% were due to similar reasons mentioned in QoQ section. Note that number of containers shipped decreased by 21% YoY.

FY19: Despite revenue decline of 11.3% (13% lower shipped volumes, mainly from weak volumes to European countries), core PATAMI declined just 2.7% to RM20.8m, mainly due to stronger USD and lower cost of certain raw materials.

Volume decline remains a concern. While volume decline in FY19 remains a concern for the group, we note their revenue streams remain geographically diversified as Homeritz supplies to close to 40 different countries. Furthermore, Homeritz shared that they are benefitting from increased sales to the US, which they will continue to try to grow via trade fares. Homeritz has room for increased order volumes, as they are operating at just 70% capacity currently.

Large cash pile. As of end-Aug, Homeritz had net cash and net cash per share of RM81.7m and 27.2 sen. We believe the group will continue to utilise the cash pile for future vertical expansion (both up or down the production chain). Over the years the group has gone up the production chain, to produce smaller parts for its goods (i.e. steel and wooden legs for chairs and tables).

Forecast. As earnings were in line, we keep our forecasts unchanged.

Downgrade to HOLD, TP: RM0.74. After rolling over our valuation year from CY19 to CY20, our TP rises to RM0.74 from RM0.71 previously, based on 10x CY20 EPS of 7.4 sen. While we continue to like Homeritz due to healthy net cash per share per share of 27.2 sen and increased automation efforts, we believe further upside will be capped by its stretched valuations following recent share price outperformance (note that share price has risen by 15.4% since Sep-19).

Source: Hong Leong Investment Bank Research - 30 Oct 2019