• Poh Huat posted a record 4QFY20 core net profit of RM23.2m, up 46.8% yoy / 89.2% qoq due to stronger-than-expected revenue and margin in its Vietnam operation
• Cumulatively, FY20 core net profit declined 5.9% yoy to RM51.7m due to negative impact from MCO
• We lift our 2021-2022E EPS forecasts by 0.3-2.5% and raise Poh Huat’s TP to RM2.02 based on an unchanged CY21 PER of 8x. Maintain BUY

Record 4QFY20 core net profit of RM23.2m (46.8% yoy)

Poh Huat posted a higher revenue of RM216.7m (+12.8% yoy) driven by the continued ramp-up in orders seen in its Vietnam operation (+29.1% yoy), mainly attributable to the higher backlog of orders carried over from the prior quarter due to disruptions in the supply chain as a result of the Covid-19 pandemic. However, the higher Vietnam contribution was partially offset by the lower contribution from its Malaysia operation which recorded a lower revenue of 5.7% yoy. Nevertheless, 4QFY20 core net profit increased 46.8% yoy to a record RM23.2m due to better GP margins seen across both its operations – its Vietnam operation’s GP margin improved to 12.9% (+3.7ppts yoy) due to better absorption of factory overheads, and higher labour and raw-material efficiency from the higher level of production. Meanwhile, for its Malaysian operation, GP margin improved by 0.3ppts yoy to 13.3% from better management of raw-material cost. A DPS of 4 sen has been declared during the quarter, bringing FY20 total DPS to 9 sen (FY19 DPS: 7 sen).

Sequentially stronger due to festive season

Sequentially, 4QFY20 revenue was seasonally stronger, increasing 63.2% qoq on the back of higher sales from both its Vietnam (+79.7% qoq) and Malaysian (+42.7% qoq) operations due to stronger fulfilment of orders from US importers in both of its operations as well as a seasonally stronger festive season. Meanwhile, 4QFY20 core net profit surged 89.2% qoq to RM23.2m on the back of an improved GP margin of 21.5% (+2.3 ppt) as a result of stable raw-material prices and better overhead absorption from higher plant utilisation rates during the quarter.

FY20 core net profit decreased 5.9%yoy due to Covid-19 impact

On a full-year basis, FY20 revenue and core net profit came in at RM659.5 (-5.9% yoy) and RM51.7m (-2.9% yoy) respectively due to the negative impact during the March to May period where operations were halted due to Covid-19 uncertainties and lockdowns. Results were ahead of our and consensus forecasts due to the better-than-expected contribution from its Vietnam operation.

Maintain BUY with a higher TP of RM2.02

We raise 2021-22E earnings forecasts by 0.3-2.5%, taking into account the recovery in margins for its Vietnam operations and in recognition of Poh Huat’s orders being filled until the month of Jun/July 2021. Post revision, our TP is raised to RM2.02 (from RM1.96 previously) based on an unchanged 8x CY21 PER. Maintain BUY

Downside risks to our call include: i) a substantial increase in raw-material prices and labour costs; ii) a major cut in the supply of rubberwood; iii) a sharp decrease in ASPs for furniture products; iv) potential lockdown from resurgence of Covid-19 cases; v) further strengthening of RM against the US$; vi) unfavourable policies supporting furniture exports; and vii) weaker demand in key export markets.

Source: Affin Hwang Research - 24 Dec 2020