Poh Huat’s 1HFY19 core net profit of RM25.0m (+34.6% yoy) came in broadly within our expectations. In particular, the Malaysia operations which focus on panel-based furniture products, registered a strong 1H revenue of RM163.4m (+31.6% yoy) on the back of higher shipment for its panel-based bedroom sets. Given no major surprises to the results, we leave our earnings forecast unchanged. Our TP on Poh Huat has been revised upward to RM1.80 (based on an unchanged PER of 7.2x), after rolling forward our valuation horizon to CY20. Maintain BUY rating on the stock.

Strong Demand for Panel-based Furniture

Poh Huat registered a higher 1HFY19 revenue by 19.7% yoy to RM344.1m, attributable to a higher shipment of furniture from both its Malaysia and Vietnam operations. The Malaysia operations, in particular, posted a strong revenue of RM163.4m (+31.6% yoy), mainly due to strong demand for its panel-based bedroom set, coming from new and existing US customers. For its Vietnam operations, revenue stood at RM180.6m (+10.7% yoy) as Poh Huat’s continue to enjoy sustained demand after adjusting its product mix to the more affordable product range for the US market. EBITDA margin for 1HFY19 was slightly higher at 9.8% (+0.5ppt), mainly as a result of: 1) lower raw material costs; and 2) better manufacturing efficiency for its Malaysia operations. Excluding one-off items, 1HFY19 core earnings came in broadly within our expectation at RM25.0m (+34.6% yoy).

Weaker Sequentially Due to Seasonal Effect

On a qoq basis, revenue and core net profit declined by 25.4% and 37.6% to RM147.0m and RM9.6m respectively. The decline was partly attributable to lower production level due to the Lunar New Year holidays, especially for its operations in Vietnam. Meanwhile, EBITDA margin contracted by 1.0ppt qoq to 9.2% partly due to the shift in product mix to the affordable range, keener price competition and higher direct labour costs in the Vietnam operations. Poh Huat has also declared an interim DPS of 2 sen for the quarter (1HFY18: 2 sen).

Source: Affin Hwang Research - 19 Mar 2019