3QFY20 core PATAMI of RM1.6m (QoQ: -68.6%, YoY: -72.4%) brought the 9MFY20 sum to RM14.6m (-7.6%). This was in line with our full year forecast, making up 73.0% of our FY20 earnings. Our forecasts remain unchanged. We maintain our BUY call and TP of RM0.72 pegged to an unchanged 10x PE multiple of FY21 earnings. Note that Homeritz has a cash pile of RM79.0m (or RM0.26/share) as of end-May.

In line. 3QFY20 core PATAMI of RM1.6m (QoQ: -68.6%, YoY: -72.4%) brought the 9MFY20 sum to RM14.6m (-7.6%). This was in line with our full year forecasts, making up 73.0% of our FY20 earnings. 9MFY20 core PATAMI figure was arrived at after removing foreign exchange gains of RM1.8m.

Dividend. 3QFY20: None declared. (9MFY20: None) (3QFY19: 2 sen, 9MFY19: 2 sen). Despite the lack of dividend this quarter, we do not expect Homeritz to lower its dividend amount in FY20 (DPS was 3 sen in FY19).

QoQ. Sharp revenue (-43.5%) and core PATAMI (-68.6%) contraction was due to lower output during the quarter from disruptions to operations during the MCO period. To recap, Homeritz shut down operations from mid-March but returned to 50% capacity at the start of April and full capacity in May.

YoY. Revenue decline of -35.1% was due to reason mentioned above. Lower revenue from lower number of working days coupled with fixed costs resulted in core PATAMI declining by a higher rate (-72.4%).

YTD. Core PATAMI shrank by -7.6% mainly due to impact on operations during 3QFY19.

Outlook. We expect the full impact of Covid-19 to be felt solely in 3Q19. From June onwards, we understand sales volumes have returned to pre-Covid-19 levels of 200+ containers per month. Going forward, US-China trade war will continue to result in US retailers and wholesalers increasing orders from countries outside of China. We expect Homeritz continue to benefit from this trend, as we note that sales to the US has increased from 4.5% of total FY19 sales to >12% currently. In terms of raw materials, Homeritz have guided that its supply chain has been relatively stable. Homeritz also mentioned it has been able to procure leather from India at a cheaper price.

Forecast. Unchanged.

Maintain BUY, TP: RM0.72. We maintain our BUY call and TP of RM0.72 pegged to an unchanged 10x PE multiple of FY21 earnings. Note that currently, Homeritz has a cash pile of RM79.0m (or RM0.26/share) as of end-May.

Source: Hong Leong Investment Bank Research - 3 Aug 2020