Homeritz’ 4Q21 core LATAMI of -RM0.1m (3Q21: RM7.3m, 4Q20: RM7.7m) brought the full year FY21 sum to RM20.1m (YoY: -10.1%). The results were within expectations, making up 105.6% and 95.3% of our and consensus full year forecasts. We leave our forecasts unchanged. Maintain BUY with unchanged TP of RM0.78 pegged to PE multiple of 11.5x based on FY22 core EPS of 6.8 sen. We continue to like Homeritz for (i) its current strong demand outlook; (ii) its position as an ODM manufacturer (which allows it to withstand cost pressure and command better margin); (iii) improved capacity contributed by its new factory as well as its better production efficiency; and (iv) sustainable strong furniture demand. In addition, the company has a healthy balance sheet with net cash of RM84.1m or NCPS of 20 sen.

Within expectations. Homeritz’ 4Q21 core LATAMI of -RM0.1m (3Q21: RM7.3m, 4Q20: RM7.7m) brought the full year FY21 sum to RM20.3m (YoY: -10.1%). The results were within expectations, making up 105.6% and 95.3% of our and consensus’ full year forecasts. FY21 core LATAMI figure was arrived at after adjusting for foreign exchange gains of RM2m.

Dividend. 0.6 sen (4Q20: 1.5 sen). FY21: 1.6 sen (FY20: 3 sen).

QoQ. Revenue decreased by 86.7% to RM6.3m as the group was not allowed to operate during the full quarter, resulting to no output produced. The revenue recognized was from the shipping of finished goods. As a result, the group recorded core LATAMI of -RM0.1m (vs. RM7.3m in 3Q21). Note that the group utilized its capital tax allowance in the quarter (net tax: +RM0.2m) which helped to mitigate the core losses.

YoY. Revenue declined 86.4% and core LATAMI recorded was -RM0.1m (vs. RM7.7m SPLY) for the same reasons as mentioned in the QoQ paragraph above.

YTD. Revenue increased by 6.1% despite a longer downtime in FY21 (16 weeks downtime vs. 6 weeks downtime in FY20) due to higher ASP. Nonetheless, core PATAMI decreased by -10.1% due to higher raw material cost.

Outlook. We believe the worst is over for Homeritz as it has resumed to full operations since mid-Sept. With a vaccinated workforce, the risk of a workplace outbreak will now be better managed. Furthermore, the risk of another nationwide lockdown (similar to Phase 1) is also less likely to happen as Malaysia is moving towards the new norm of “living with the endemic”. We anticipate strong earnings results in the next quarter as Homeritz scales up its production to catch up on the back log orders from its production halt previously.

Forecast. Unchanged.

Maintain BUY with an unchanged TP of RM0.78 pegged to PE multiple of 11.5x based on FY22 core EPS of 6.8 sen. We reiterate our positive outlook for the company supported by (i) its current strong demand outlook (production lead time c.180 days); (ii) its position as an ODM manufacturer (which allows it to withstand cost pressure and command better margin); (iii) improved capacity contributed by its new factory as well as its better production efficiency; and (iv) sustainable strong furniture demand. In addition, the company has a healthy balance sheet with net cash of RM84.1m or NCPS of 20 sen.

Source: Hong Leong Investment Bank Research - 29 Oct 2021