2Q21 core PATAMI of RM5.9m (QoQ: -17.9%, YoY: 13.6%) brought 1H21’s sum to RM13.1m (+1.1%) accounting for 53.7% of our and 51.6% of consensus full year forecasts. We lower our FY21 forecast by -6.6% to account for loss of annual capacity due to temporary closure in 2Q21. Our TP decreases from RM0.72 to RM0.71 pegged to 11.5x of revised FY22 core EPS of 6.2 sen (to reflect a larger share base arising from exercise of warrants). Despite the current elevated raw material price level, we remain positive on the company’s outlook supported by the strong demand for its products. In addition, the company has a healthy balance sheet with NCPS of 23 sen as well as a decent dividend yield of 5%. Maintain BUY.

Within expectations. 2Q21 core PATAMI of RM5.9m (QoQ: -17.9%, YoY: 13.6%) brought 1H21’s sum to RM13.1m (+1.1%) accounting for 53.7% of our and 51.6% of consensus full year forecasts. 2Q21 core PATAMI was arrived at after accounting for foreign exchange gains of RM0.6m and one-off expense for the corporate proposal of bonus issue and free warrant of RM0.2m.

Dividend. Declared DPS of 1 sen (ex-date: 11 Jun 2021) (6MFY21: 1 sen) (1Q20: None, 6M20: None).

QoQ. Revenue increased by 11.7% mainly due to increase in sales volume which more than offset the weaker MYR/USD (-2.2% QoQ). Despite the increase in revenue, core net profit decreased by -21.1% due to higher raw material cost.

YoY & YTD. Revenue increased by 36.0% YoY and 31.4% YTD, mainly due to increase in sales volume which more than offset the weaker MYR/USD (-2% YoY, - 1.4% YTD). Despite the increase in revenue, core net profit increased by only 9.2% YoY and decreased by -0.7% YTD due to higher raw material cost.

Outlook. We anticipate Homeritz to post weaker earnings in 3Q21 due to the closure of all of its 7 factories for 7 days (as there were Covid-19 cases detected in the premise), which resulted in a loss of production capacity in April. In light of the tightened MCO3.0 that only allows 60% of workforce in the workplace, we understand that Homeritz is currently seeking clarity from authority on the total workforce allowed in the factory. Nonetheless, the saving grace comes from its strong product demand (current production lead time is around 120-150 days). In addition, Homeritz’s new factory which has partially started operating since 3Q21 will provide further upside to its earnings in the future. However, due to labour shortages, the factory’s utilization rate currently is still low and limited.

Forecast. We lower our FY21 forecast by -6.6% to account for 1 week loss of annual capacity (due to temporary closure in 2Q21). We leave FY22-23 forecasts unchanged.

Maintain BUY, TP of RM0.71. Our TP decreases from RM0.72 to RM0.71 pegged to 11.5x of revised FY22 core EPS of 6.2 sen (to reflect a larger share base arising from exercise of warrants). Despite the current elevated raw material price level, we remain positive on the company’s earnings prospects supported by the strong demand for its products. In addition, the company has a healthy balance sheet with NCPS of 23 sen as well as a decent dividend yield of 5%.

Source: Hong Leong Investment Bank Research - 25 May 2021