Dividend. 1QFY20: None Declared (1QFY19: None)

QoQ. Core PATAMI grew 54.2% in tandem with revenue growth of 23.2%. Better profitability was driven by better sales volumes, lower production cost and weaker ringgit.

YoY. Core PATAMI rose sharply by 82.3% to RM7.8m from RM4.3m in 1QFY19. This was attributed to better sales volumes, weaker ringgit, and cheaper raw material cost during the period.

Outlook. Positive volume growth in 1QFY20 is encouraging for the group. While we note their revenue streams remain geographically diversified as Homeritz supplies to close to 40 different countries, 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. Despite this, we expect the coming quarters to be slightly weaker due to higher minimum wage in major cities (which includes Muar, where Homeritz’s manufacturing facility is located).

Large cash pile. As of end-Nov, Homeritz had net cash and net cash per share of RM86.7m (or 28.9 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. We raise our FY20/21 forecasts by 5.5%/2.5% to account for better sales volumes.

Upgrade to BUY, TP: RM0.76. After our earnings adjustment, our TP rises to RM0.76 from RM0.74 previously, based on 10x revised CY20 EPS of 7.6 sen. We continue to like Homeritz due to healthy net cash per share per share of 28.9 sen and increased automation efforts. We upgrade our call to BUY (from Hold previously) following recent share price retracement and our earnings upgrade.
 

Source: Hong Leong Investment Bank Research - 6 Jan 2020