Homeritz’ 1QFY22 core PATAMI of RM7.4m (4QFY21: -RM0.1m; +3% YoY) came in above expectations as we expected a weaker 1QFY22 contribution due to the 2 weeks productivity loss during the quarter. We raise our earnings forecast by 11.6% and 7.3% for FY22-23 to account for stronger sales volume arising from the group’s improved production planning. We introduce FY24 forecast. We remain positive on the company’s outlook supported by its strong order outlook as well as its improved capacity contributed by its new factory and improved production efficiency. Maintain BUY with a higher TP of RM0.87 pegged to 11.5x FY22 core EPS of 7.5 sen.

Above expectations. 1QFY22 core PATAMI of RM7.4m (4QFY21: -RM0.1m; +3% YoY) made up 26.5% and 26.7% of our and consensus full year forecasts. We deemed the results above our expectation as we expected a weaker 1QFY22 contribution due to 2 weeks productivity loss during the quarter. 1QFY22 core PATAMI figure was arrived at after adjusting for foreign exchange gains of RM1.1m.

Dividend. None. (1QFY21: None).

QoQ. Revenue increased +8.3x to RM58.5m from a low base as the group was not allowed to operate during the full quarter in 4Q21. Consequently, core PATAMI rebounded to RM7.4m (from -RM0.1m).

YoY. Despite the 2 weeks productivity loss in Sept 2021 (due to production halt from NRP restrictions), revenue increased by +11.4% mainly due to the higher ASP compared to SPLY. Nonetheless, core PATAMI recorded a smaller magnitude of increase by +3% due to higher raw material cost and tax expenses.

Outlook. Homeritz 1QFY22 earnings were impacted by the 2 weeks loss of production in Sept 2021. As such, we expect Homeritz earnings to improve in subsequent quarters as it will have more operating days ahead. Although raw material costs remain elevated, we believe Homeritz will be able to pass on most of these costs. Historically, Homeritz managed to maintain a stable gross profit margin due to its superior pricing power as an ODM manufacturer. We remain positive on the company’s outlook supported by its strong order outlook (production lead time: 120 - 150 days) as well as its improved capacity contributed by its new factory and improved production efficiency. Besides, we understand that the group had submitted an application to bring in additional foreign workers, which should further boost its production volume once the foreign workers come in.

Forecast. We raise our earnings forecast by 11.6% and 7.3% for FY22-23 to account for stronger sales volume arising from the group’s improved production planning. We introduce FY24 forecast.

Maintain BUY with a higher TP of RM0.87 pegged to 11.5x FY22 core EPS of 7.5 sen. We continue to like Homeritz for its position as an ODM manufacturer which allows it to withstand cost pressure and command better margin. Furthermore, its new factory and improved production efficiency should contribute to better production volume going forward. In addition, the company has a healthy balance sheet with net cash of RM91.8m or NCPS of 22 sen (37.9% of its market capitalisation).

Source: Hong Leong Investment Bank Research - 26 Jan 2022