1Q21 core net profit of RM7.5m (vs. core net loss of -RM6.0m in 4Q20 and core net loss of -RM11.7m in 1Q20) was above our expectation, making up 97.4% of our FY21 forecast. We increase our FY21/22 core net profit forecasts from RM7.7m/RM14.6m to RM21.1m/RM33.4m to account for higher ASP, stronger demand and lower operating cost going forward. After adjusting for higher earnings, our TP increases from RM0.65 to RM0.68 pegged to an unchanged PB multiple of 0.5x based on FY21 BVPS. Despite current elevated raw material and freight cost, we opine that the strength in ASPs and strong demand across all its product segments will be able to support the group’s earnings going forward. Maintain BUY.

Above expectation. 1Q21 core net profit of RM7.5m (vs. core net loss of -RM6.0m in 4Q20 and core net loss of -RM11.7m in 1Q20) was above our expectation, making up 97.4% of our FY21 forecast. Our core earnings sum was derived after adjusting for foreign exchange gain of RM1.9m and gain on disposal of PPE of RM0.2m.The performance beat was due to higher ASPs across all product segments and lower freight expenses due to less shipment to export market.

Dividend. None Declared. (1Q20: None).

QoQ. Revenue came in flat (+0%) as the higher ASPs across all its product segments were offset by the lower sales volume. Despite that, the group recorded core net profit of RM7.5m (4Q20: -RM6m) due to better margin and lower freight expenses as the group exported less panel boards products and instead shifted its supply to the local market.

YoY. Revenue was flattish overall (+2.6%) contributed by Malaysia (+16.9%) and Indonesia (+18.8%) but offset by Thailand (-19.2%). The increase in revenue from Malaysia and Indonesia was due to higher sales volume and ASP from panel boards, while for Thailand, although there was an increase in ASP in its product, this was more than offset by the lower sales volume due to delays in some shipments. Despite flattish revenue, the group recorded core net profit RM7.5m (1Q20: -RM11.7m) due to better margin and lower operating cost.

Outlook. Despite elevated raw material and freight cost, we remain optimistic on the group’s outlook. The strength in the ASPs across all product segments are expected to sustain in FY21 supported by the local furniture industry boom. The group is also seeing strong demand with order book visibility of 2-7 months across all its product segments. Besides that, the group also partially mitigated the impact of the elevated freight cost by shifting some of its supply of panel boards from export market to the local markets in Malaysia and Indonesia.

Forecast. We increase our FY21/22 core net profit forecasts from RM7.7m/RM14.6m to RM21.1m/RM33.4m to account for higher ASPs, stronger demand and lower operating cost going forward. We also introduce FY23 forecasts.

Maintain BUY. After adjusting for higher earnings, our TP increases from RM0.65 to RM0.68 pegged to an unchanged PB multiple of 0.5x based on FY21 BVPS. We remain positive on the group’s outlook supported by the strong demand and ASPs across all its product segments.

Source: Hong Leong Investment Bank Research - 18 May 2021