Homeritz’ 4Q22 core PATAMI of RM9.5m (QoQ: +10.5%, YoY: -RM0.1m) brought the full year FY22 sum to RM35.2m (YoY: +73.4%). The results were within our (103.2%) but exceed consensus (105.7%) full year forecasts. However, due to the aggressive interest rate hikes in US and Euro denting home sales and hence furniture demand, we cut our FY23/24 forecasts by -15%/-15.1%. Despite commendable 4Q22 results, we opine that demand uncertainty coupled with slowing housing demand as interest rates continue to rise is clouding the earnings visibility for the group. Downgrade to HOLD with a lower TP of RM0.53 pegged to a lower PE multiple of 8x based on FY23 core EPS of 6.6 sen.

Within ours but exceeded consensus. 4Q22 core PATAMI of RM9.5m (QoQ: +10.5%, YoY: -RM0.1m) brought full year FY22 sum to RM35.2m (YoY: +73.4%). The results were within ours (103.2%) but exceeded consensus (105.7%) full year forecasts. FY22 core PATAMI figure was arrived at after adjusting for EI amounting to RM5.8m.

Dividend. 1 sen, ex-date: TBA (4Q21: 0.6 sen). FY21: 2 sen (FY21: 1.6 sen).

QoQ. Revenue decreased by 21% mainly due to a decrease in volume of products sold as consumer demand slowed but this was partially cushioned by a stronger USD in the quarter. Consequently, despite a decline in sales volume, core PATAMI increased by 10.5% as margin expanded thanks to the stronger USD in addition to lower tax expenses.

YoY. Revenue increased by +7.1x due to higher volume of products sold as a result of higher operational days – Homeritz was unable to operate for the full quarter of 4Q21 due to the MCO (Jun-Aug 2021). Consequently, the group recorded core PATAMI of RM9.5m (vs. -RM0.1m SPLY).

YTD. Besides the reason mentioned in the YoY paragraph above, revenue increased by 47.5% largely due to the stronger USD as compared to SPLY. In turn, core PATAMI increased by 73.4%.

Outlook. Homeritz FY22 performance beat was largely due to having more operational days following the easing of restrictions as well as the stronger USD. However, we are cautious on the group’s upcoming performance as consumer demand for furniture slows amidst an elevated inflationary environment. As central banks in the US and Euro regions continue on their aggressive interest rate hikes, this would affect home sales, and hence furniture demand. Nonetheless, on supply side, Homeritz has started to see the incoming of foreign labour (albeit at small scale) since Aug 2022 with more in the coming months, which will coincide with the group’s expansion plans in the Muar furniture park by end-CY22. We also note that the group will benefit from the continued strength of the USD (as the Fed continues to raise rates) as >90% of the group’s revenue is in USD while costs are mainly in MYR, which could partially offset the decline in furniture demand.

Forecast. In view of the demand uncertainties ahead, we cut our FY23/24 forecasts by -15%/-15.1% respectively.

Downgrade from Buy to HOLD with a lower TP of RM0.53 from RM0.69 pegged to a lower PE multiple of 8x from 9x based on FY23 core EPS of 6.6 sen. Despite commendable 4Q22 results, we opine that demand uncertainty coupled with slowing housing demand as interest rates continue to rise is clouding the earnings visibility for the group. However, downside should be cushioned by its healthy balance sheet with net cash of RM147.6 or NCPS of 31.9 sen (59.6% of its market capitalization).

Source: Hong Leong Investment Bank Research - 31 Oct 2022