We deem Homeritz’ 9M21 core PATAMI of RM20.4m (YoY: +39.7%) within our expectation (107.4% of our full year forecast), as we foresee potential losses in the next quarter as it was not allowed to operate. We leave our forecasts unchanged. Maintain BUY with unchanged TP of RM0.71 pegged to PE multiple of 11.5x based on FY22 core EPS of 6.2 sen. Despite anticipating a weak quarter ahead, we believe Homeritz is well positioned to chart a strong recovery once operations resume.

In line. Homeritz’ 3Q21 core PATAMI of RM7.3m (QoQ: +23.2%, YoY: +3.5x) brought 9M21’s sum to RM20.4m (YoY: +39.7%). We deem the results within our expectation, accounting for 107.4% of our full year forecast as Homeritz was not allowed to operate during the full quarter ahead, which will likely result to losses given fixed overheads. Against the consensus, the results accounted for 83.1% of consensus’ full-year estimates. 9M21 core PATAMI figure was arrived at after adjusting for foreign exchange gains (-RM1.9m) and one-off expense for the corporate proposal of bonus issue and free warrants (+RM230k).

Dividend. None. (3Q20: none). 9MFY21: 1 sen (9MFY20: none).

QoQ. Revenue decreased by 19.3% mainly due to reduction in production volume which more than offset the higher ASP. The reduction in production volume was a result of (i) the 14 days temporary closure of factories in April due to a Covid-19 outbreak; and (ii) reduced factory workers capacity at 60% in May due to MCO3.0 restrictions. Despite the decline in revenue, core PATAMI increased by 23.2% due to higher profit margin as a result of higher ASP.

YoY. Revenue increased by 94.3% due to increase in sales volume (MCO1.0 was implemented SPLY) as well as an increase in ASP. In turn, the group recorded core PATAMI of RM7.3m (vs RM1.6m or +3.5x compared to SPLY).

YTD. Revenue increased by 45.5% due to the same reasons as in the YoY paragraph above. In turn, core PATAMI increased by 39.7%.

Outlook. Despite a QoQ decline in sales volume in 3Q21, Homeritz managed to record an improvement in its earnings due to an increase in its ASP and we believe this is due to the stronger pricing power of Homeritz (relative to peers) capitalizing on its product differentiation as an ODM manufacturer. We anticipate a much weaker quarter ahead as Homeritz was not allowed to operate for the full quarter period (June – Aug 2021) due to Phase 1 restrictions, thus, it will only be able to generate revenue through shipping of finished goods during the quarter; this will likely result to losses for the upcoming quarter. Nonetheless, we expect a strong recovery once Homeritz resumes operations (estimated mid-Sep) supported by (i) strong product demand (current product lead time is around 180 days); (ii) strong ASP; and (iii) the current strength in USD which should augur well for Homeritz.

Forecast. Unchanged.

Maintain BUY with unchanged TP of RM0.71 pegged to PE multiple of 11.5x based on FY22 core EPS of 6.2 sen. Despite anticipating a weak quarter ahead, we believe Homeritz is well positioned to chart a strong recovery once operations resume supported by the reasons mentioned above. In addition, the company has a healthy balance sheet with net cash of RM87m or NCPS of 21 sen

Source: Hong Leong Investment Bank Research - 30 Aug 2021