Poh Huat reported a lower core net profit of RM16.3m (-35.1% yoy) in 6MFY20, due to lower contribution from both its Malaysian and Vietnam operations. We expect Poh Huat’s FY20E earnings to be impacted by the Covid-19 pandemic, which has disrupted supply and demand of furniture products. The 6MFY20 results were within our and consensus expectation. We make no changes to our earnings estimates, but upgrade the stock to a HOLD due to improved investor sentiment, ample market liquidity as well as tracking a recovery in global equity indices. We raise our TP to RM1.08 based on 5.7x 2021E EPS.

6MFY20 Core Net Profit Fell 35.1% Yoy to RM16.3m – Within Expectation

Poh Huat posted a weak set of numbers – 6MFY20 revenue declined by 9.9% yoy to RM310m, mainly due to lower contribution from both its Malaysian (- 8.2% yoy to RM150.1m due to suspension of operations as a result of Movement Control Order) and Vietnam segments (-11.5% yoy to RM159.9m as US customers rescheduled their shipments to 2HFY20, in line with the fall in US retail activities). Poh Huat’s EBITDA margin weakened by 1.9ppt to 7.9% in 6MFY20, attributable to lower margin at the Malaysian operation as Poh Huat continued to pay wages to workers during the MCO and continued to incur fixed manufacturing overheads, while Vietnam operation showed improvement due to the moderation of raw material prices and cost cutting efforts in workforce and overheads. Poh Huat’s core net profit declined 35.1% yoy to RM16.3m, which is in line with our forecast - accounting for 46% of our 2020E earnings estimate. No dividend was declared for the quarter.

Sequentially Weaker Core Net Profit as Expected

On a qoq basis, revenue and core net profit declined by 35.8% and 65.1% to RM121.2m and RM4.2m respectively. Profits were lower at both its Malaysian and Vietnam operations as businesses were affected by the Covid-19 pandemic during the quarter. The Covid-19 disruption had adversely affected supply and demand due to movement restrictions, health concerns and economic uncertainties.

Source: Affin Hwang Research - 24 Jun 2020