• Jaycorp recorded stronger 4QFY22 results with revenue having improved +20% yoy without impact of FMCO which affected 4QFY21
• FY22 core net profit of RM20.7m (-32% yoy) came in below our full-year forecasts due to lower-than-expected sales and higher-than-expected operating costs
• Reduce FY23-24E by 9-14% and introduce FY25E EPS. Maintain HOLD with a lower TP of RM0.66 pegged to 9x PE based on CY23E EPS

Stronger 4QFY22 Performance Yoy Without Impact of FMCO

YoY, Jaycorp recorded higher 4QFY22 revenue of RM60.1m (+19.8% yoy) and core net profit of RM3.2m from a core net loss of RM0.6m in 4QFY21. The group’s performance across all divisions improved yoy (ranging from +4.9% to +330.1%) off a low base, primarily due to FMCO impacting the group’s operations in 4Q21. Despite the better 4QFY22 performance, Jaycorp’s FY22 core net profit declined to RM20.7m (-32.1% yoy) and fell below our estimates accounting for 86% of full-year forecasts due to lower-than-expected sales and higher-than-expected operating costs.

Cost Inflation and Sluggish Orders to Continue Impacting Performance

Vs the preceding quarter, Jaycorp recorded a lower revenue and core net profit (-34.1% qoq, -66.0% qoq), contributed by a 41% qoq decrease in revenue from its largest business segment, furniture (due to decreased demand from local North American and Asia (ex Malaysia) customers), 25% qoq contraction in its carton box division (due to decreased demand from both internal and external customers), 33% reduction in kilndrying (due to decreased demand from intercompany and overseas customers of the Indonesian subsidiary), 7% decline in construction (with lower turnover), and 14% decline in others. These were slightly offset by a >+100% increase in contribution from investment holding (with higher dividends declared by subsidiaries) and +14% in renewable energy (due to higher offtake by customer and insurance claims received).

Maintain HOLD With Lower TP of RM0.66

We reduce our earnings forecasts by 9.1-14.4% for FY23-24E and introduce FY25E earnings. Lower our TP to RM0.66 (from RM0.71) after reducing our sales and margins assumptions. Valuation is pegged to 8.6x PE (from 8.3x PE) which is close to its five-year forward mean PE. Maintain HOLD call. Upside/downside risks are 1) higher/lower-than-expected sales contributions across its business segments, 2) lower/higher-than-expected demands from overseas and domestic customers for its Furniture business, and 3) lower/higher labour costs and raw material costs.

Disposing 60% Stake in Digital Furniture

According to Jaycorp’s 29 September 2022 announcement on Bursa Malaysia, it had entered into a Share Sale Agreement to dispose of its total equity stake of 60% in Digital Furniture Sdn Bhd for a total sale consideration of RM22.5m. Digital Furniture’s primary business is in the manufacturing and trading of furniture and furniture parts. The disposal is expected to be completed by the end of FY23 and the sale consideration was arrived based of a ‘willing-buyer-willing-seller’ basis. Proceeds from the disposal will be used for working capital, repayment od bank borrowings and potential venture into other business opportunities. We are positive of the disposal as this is expected to further streamline its business in the complete furniture manufacturing focusing on lean manufacturing system and efficient production planning.

Source: Affin Hwang Research - 30 Sep 2022