2QFY20 core PATAMI of RM5.2m (QoQ: -33.0%, YoY: -7.7%) brought 1HFY20 core PATAMI to RM13.0m (+31.1%); this was below our expectations, accounting for 56.8% of our full year earnings. We deem this below expectations as we anticipate significantly weaker 3QFY20 earnings due to the impact of Covid-19 on order volumes. We lower our FY20/21 forecasts by 12.6%/10% to account for weaker sales going forward. After rolling over our valuation year to FY21 and adjusting for changes in earnings our TP falls from RM0.76 to RM0.72 pegged to an unchanged 10x PE multiple. Note that currently, Homeritz has a cash pile of RM81.1m (or RM0.27/share) as of end-Feb, which implies Homeritz is trading at an ex-cash PE of just 4.2x based on FY20 forecasted earnings. Maintain BUY.

Below expectations. 2QFY20 core PATAMI of RM5.2m (QoQ: -33.0%, YoY: -7.7%) brought the 1HFY20 sum to RM13.0m (+31.1%); this was below our expectations, accounting for 56.8% of our full year earnings. We deem this below expectations as we anticipate significantly weaker 3QFY20 earnings due to the impact of Covid-19 on order volumes. 1HFY20 core PATAMI figure was arrived at after removing foreign exchange gains of RM0.9m.

Dividend. 2QFY20: None declared (6MFY20: None) (1QFY19: None, 6MFY20: None)

QoQ. Despite revenue rising 4.0% from better volumes, poorer cost management resulting in higher operating expenses led to core PATAMI declining 33.0%. Homeritz shared they incurred unprecedentedly cheap input costs in 1QFY20.

YoY. Increase in sales volumes caused revenue to rise 6.8% to RM43.1m. Despite this, core PATAMI declined by 7.7% for reasons mentioned above.

YTD. Higher revenue of RM84.6m (+10.6%) and core PATAMI (+31.1%) was due to (i) higher volume sales (ii) lower raw material costs.

Outlook. Positive volume growth in 1HFY20 is encouraging for the group. Despite overall stronger earnings in 1HFY20 (+31.1%), we note that 2Q20 earnings does not reflect impact of Covid-19 as 2QFY20 ended in end-Feb. We expect weaker 3QFY20 earnings as we understand Homeritz ceased production at the start of the MCO in mid-March. While we understand Homeritz was granted permission to return to 50% production capacity in mid-April and full capacity in May, we still expect weaker volumes from a slowdown in the overall global economy.

Forecast. We lower our FY20/21 forecasts by 12.6%/10% to account for weaker sales going forward.

Maintain BUY, TP: RM0.72. After rolling over our valuation year to FY21 and adjusting for changes in earnings our TP falls from RM0.76 to RM0.72 pegged to an unchanged 10x PE multiple. We continue to like Homeritz due to healthy net cash per share per share of RM0.27. While we see short term impact to earnings from Covid- 19, we believe the stock is oversold at these price levels. Note that currently, Homeritz has a cash pile of RM81.1m (or RM0.27/share) as of end-Feb, which implies Homeritz is trading at an ex-cash PE of just 4.2x based on FY20 forecasted earnings. Maintain BUY.

Source: Hong Leong Investment Bank Research - 28 May 2020