• Poh Huat Reported a Weak Set of Results

• 1QFY21 core net profit declined by 7.6% yoy to RM11.1m on the back of lower contribution from its Malaysian operation – below our and consensus forecasts

• We cut our 2021-2023E EPS forecasts by 10.5-12% taking into account the weaker margin from its Malaysian operation. We roll forward our earnings horizon to CY22E, and our TP is raised slightly to RM2.03 (from RM2.02) based on a lower PER of 7.7x, +1SD from its 5-year mean

Weaker Margins From Its Malaysian Operation

Poh Huat posted a lower 1QFY21 revenue of RM183.7m (-2.7% yoy) mainly attributable to lower furniture sales from its Malaysian operation (-24% yoy) due to production being halted from 25th January to 3rd February following a segment-wide voluntary Covid-19 test after positive cases were found in their Muar factories, disruptions in operating hours due to CMCO/MCO and port congestion issues. This lower revenue was, however, partially offset by higher contribution from its Vietnamese operation of 21% yoy from sustained orders from its US customers. Meanwhile, core net profit declined by to RM11.1m (-7.6% yoy) due to lower PBT margin of 5.2% (-2.4ppt yoy), dragged by its Malaysian operation which saw its PBT margin fall to1.2% (-8.1ppt yoy) due to higher fixed costs from lower production levels as a result of Covid-19 interruptions. Meanwhile, its Vietnamese operation registered a stronger PBT margin of 10% (+3.9ppts yoy) due to better labour efficiency and better absorption of manufacturing overheads from higher levels of production during the quarter.

1QFY21 Core Net Profit at RM11.1m – Below Expectations

Sequentially, 1QFY21 revenue and core net profit declined 15.3% and 52% qoq to RM183.7m and RM11.1m respectively attributable to a seasonally stronger 4QFY20 and lower PBT margin of 6.3% (-6.7ppt qoq) due to: 1) a drop in operating efficiency due to Covid-19 related production interruption in Malaysia, 2) incidental costs for the Covid-19 screening test of about RM500k, 3) strengthening of the RM against the US$, 4) higher shipment backlog and 5) an increase in raw-material costs. Results were below our and consensus estimates. Poh Huat has declared a dividend of 1 sen (vs 3QFY20: 1sen).

Source: Affin Hwang Research - 26 Mar 2021