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(Icon) Poh Huat (1) - Beneficiary of Weak Oil Price

Publish date: Sun, 14 Dec 2014, 08:01 PM
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I follow the smell of money.





Executive Summary


(1) Furniture exporter with approximately 90% sale to US.


(2) PER of 6.8 times based on historical EPS of 19 sen. 


(3) Weakening of Ringgit from RM3.12 to RM3.50 per USD could propel EPS to 48 sen ? 


(4) Paid out 8 sen dividend in 2014, equivalent to dividend yield of 6.2%


(5) October quarterly result will be released soon. Traditionally strongest quarter due to year end festive season sales.



1. Introduction


Poh Huat is a furniture manufacturer with factories in Johor and Vietnam. Almost all its products are exported to US.


Based on latest closing price of RM1.30 and shares outstanding of 113 mil, market cap is RM147 mil.


Based on historical net profit of RM22 mil, PER is approximately 6.8 times.


Based on net assets of RM164 mil, PBR is approximately 0.9 times.


Healthy balance sheet with small net cash (RM47 mil loans backed by RM51 mil cash).





2. Hsitorical Profitability


          FY2013       YTD
(RM mil) Jan 13 Apr 13 July 13 Oct 13 Total Jan 14 Apr 14 July 14 Total
Revenue 95.0 70.8 90.9 101.3 358.0 95.5 84.4 89.1 269.0
> Malaysia 39.1 28.2 29.2 31.1 127.6 33.4 35.7 34.7 103.8
> Vietnam 54.3 40.9 60.1 68.9 224.2 60.9 47.4 53.7 162.0
> others 1.6 1.6 1.7 1.3 6.2 1.2 1.2 0.8 3.3
PBT 6.2 0.6 2.6 10.1 19.5 7.1 3.4 4.4 14.9
> Malaysia (0.4) (2.2) 0.3 n/a n/a 1.5 1.4 1.5 4.4
> Vietnam 6.9 3.2 8.3 n/a n/a 5.3 3.1 3.6 11.9
> others (0.2) (0.3) (6.75) ^ n/a n/a 0.3 (1.1) (0.7) (1.5)
Net profit 4.8 0.2 1.3 10.3 16.6 6.3 2.5 3.8 12.5
EPS (sen) 4.2 0.2 1.1 9.1 14.6 5.5 2.2 3.3 11.0
USD : RM 3.053 3.085 3.117 3.233 3.122 3.250 3.282 3.210 3.247


^ bad debt related to Poh Huat Qingdao, a small subsidiary which has since been disposed of 



(a) Reported net profit of RM16.6 mil in FY2013. However, there was a bad debt of RM6.75 million. Excluding that exceptional item, net profit would be RM22 mil.


(b) Reported net profit of RM12.5 mil for 9 months ended July 2014. However, the July 2014 quarterly result was adversely affected by riot in Vietnam. In the July quarter for FY2013, Vietnam division reported PBT of RM8.3 mil. Due to the riot, July 2014 quarter Vietnam PBT was only RM3.6 mil.


If we assume that the July 2014 Vietnam PBT is same as FY2013, YTD nine months net profit would be RM16 mil (instead of RM12.5 mil). Based on assumption that the coming October 2014 quarter also reported net profit of RM10.3 mil (same as Oct 2013 result), FY2014 net profit would be RM26.3 mil. Prospective PER based on sustainable earnings would be approximately 5 times.


(c) For FY2013, average RM : USD exchange rate is RM3.122.

For 9 months ended Oct 2014, average exchange rate is RM3.247.

As at to-date, exchange rate is RM3.495.




3. Dividend Yield of 6.2%


In calender year 2014, the Company has so far declared 8 sen dividend (2 sen yet to go ex). 


Based on share price of RM1.30, dividend yield is 6.2%.


Date of      
announcement Details amount Ex date
31 Oct 2014 Second interim 2 sen 6 Jan 2015
10 Sept 2014 First interim  3 sen  8 Oct 2014
1 April 2014 Final 3 sen 7 May 2014
Total   8 sen  
28 Nov 2013 Special 2 sen 11Dec 2013
3 April 2013 First and final 2 sen 7 May 2013
Total   4 sen  


(source : Bursa website)




4. Net Profit Sensitivity Analysis


With its revenue denominated in USD, every single sen increase in revenue due to Ringgit devaluation will flow directly to net profit after deducting 25% tax (assuming that this is the effective tax rate).


Based on simplistic financial modelling, the group's net profit will increase as follows when the Ringgit weaken :-


  3.12 3.30 3.50 3.70
Revenue 358.0 378.7 401.6 424.6
Net profit 21.6 37.1 54.3 # 71.6
EPS (sen) 19.2 32.9 48.1 63.3
PER (x) 6.8 4.0 2.7 2.1


# To understand how I arrived at the figures, let's take RM : USD 3.5 as example :-


(1) FY2013 revenue of RM358 mil was arrived at based on USD : RM of 3.12

(2) If Ringgit depreciates to 3.5, revenue will be RM358 mil x 3.5 / 3.12 = RM401.6 mil

(3) the surplus of RM43.6 mil will flow directly to pretax profit

(4) After deducting 25% tax, net gain will be RM32.7 mil

(5) Net profit will be RM21.6 mil + RM32.7 mil = RM54.3 mil




5. Concluding Remarks


(1) I am not the first one to suggest that weak Ringgit will benefit exporters. For example, The Edge Financial Daily has recently proposed buying into Homeritz exactly for that purpose. However, I had gone one step further to try to quantify the benefit through financial simulation.


(2) Before you jump into the market to buy up Poh Huat big time, let me qualify that if you ask me whether I really believe that Poh Huat will increase its net profit next year by 150% to RM54.3 mil, my answer is "Probably not...". 

My reasoning is very simple. In life, you will seldom be rewarded so handsomely without trying real hard. 

Unless Poh Huat has already locked in next year revenue in USD through contractual arrangement (which I doubt so), I would expect the American purchasers to demand downward revision of USD pricing once they get wind of the windfall gain arising from the Ringgit devaluation.

Having said so, I don't think they will be so unreasonable as to wipe off the entire gain (afterall, are they going to compensate Poh Huat in the opposite case of Ringgit strengthening ? I don't think so).   

I believe there will be actual substantial translation gain in the event that the average USD : RM exchange rate next year is 3.5. For example, a 50% increase in net profit is not inconceivable.


(3) Apart from weaker Ringgit, the collapse of oil price has put more money into Americans' pockets. With more spending power, demand for furniture will also go up (hey, let's change our sofa now that we are saving so much money from lower fuel price). That is why the title of this article is "Beneficiary of Weak Oil Price" instead of just "Beneficiary of Weak Ringgit".


(4) If you are thinking of buying into Poh Huat after reading this article, please be warned that in a market meltdown like in 1997, all share price will collapse no matter how profitable a company is. The market will simply go insane.


So please be careful with your money. Think hard before you jump in.


Have a nice evening.



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2 people like this. Showing 37 of 37 comments


Hi Icon8888. Just asking, why people is equating 2015 to 1997 financial crisis? This is very worrying...

2014-12-14 23:40


monitor BNM moves in this coming weeks, not sure can cause KLCI to waterfall ?

2014-12-14 23:59


Foreign funds are exiting, throwing at any low price......they sense something will go burst in out money market?

2014-12-15 00:05


habis lah ...no eye see........another attack !!!.....

2014-12-15 00:27


Berakah. Few diff from 1998.
Ringgit is now regulated.
Ci is now 30 vs 10.
stock r regulated in short. Vs no regulated
clob exchange ceased vs shorting bursa from spore.
Foreign reserve is now usd 150billion vs 20 b

Not easy to attack.

2014-12-15 00:31


30 vs 100

2014-12-15 00:31


No hedge fund wan to mess with a country that would use capital control as a weapon.

2014-12-15 00:33


Capital control is a poison pill. Either party suffers. Jys look at post capital control the country coma for 7 yrs.

2014-12-15 00:35


Why is everyone afraid of rinngit devaluation??? Yen devalued from 76 to 120 vs usd. Nikkei rocket from 10000 to 18000 within a few month. Unprecedented.

If ringgit from 3.50 to 5.00
Fdi flows in like crazy.

Klci maybe 2500

2014-12-15 00:45


1998 crisis killed many company on usd loan jus like high oil price kill many airline initially.
What happen to airline now? They hedge the fuel. The biz hedge the usd loan. Either by default or fwd swap. Its a requirement for big bank tat u hedge to get a loan. I believe.

2014-12-15 00:48


Third generation that mgt genting or hupseng graduated frim wharton or stamford business school. They donno the need to hedge after their grandfather nearly killed in 1998 crisis?? Cannot be.

2014-12-15 00:51


In the eye of foreign fund. Bursa is never attractive nor tradable. They have avoided bursa since 1998. Off ti indonesia.
Both 1999 low for klci n indon is mid 200. When indo reach 5000. Klci barely at 1300. So with so limited foreign participation. How much low it can get even if they dump all.
1998 was diff. That was the asia 4 tigers
Since then. The no.1 sick cat in asia.

2014-12-15 01:02


Ya this time would not be same as 1998 because the KLSE is self play and supported by the local institutional funds.

2014-12-15 07:58


KLSE is the worst performer in the region. That is the problem face when the gov get into the business.

2014-12-15 10:03


Hi Icon8888, for GOB - it seems the mother price is priced at RM0.50 - which is the same as the rights issue price. We live in very interesting time now.... :-)

By the way, i went through your Gadang article. It seems you are very interested about Capital 21 and does not mention anything about Gadang's construction order book. Why is that so?

2014-12-15 18:12


kancs, got regret or not?

2014-12-15 18:15


@ Icon8888, By the way, what do you think of GOB's debt? I am afraid it may go to Holland....the debt level is at a quarter of a million...

2014-12-15 18:27


@ Optimuss....regret about GOB? Depends regret about what? Regret i bought at RM1.07? Yes. Could have bought lower. Indeed, market gave me a few times of opportunities to average down but i do not take it. Regret that i subscribe to GOB's rights issue? No.

But now, just scared about GOB's level of debt - sitting at about quarter of a Million. Scared the level of debt is not sustainable.

By the way, i believe in Batu Kawan. The US MNC that i work in (cannot tell you the name) recently invest RM1.0B at Batu Kawan and GOB's land is just 5KM from the new plant.

2014-12-15 18:30


kancs, u may be sitting on losses for few years.

2014-12-15 18:31


@ Optimuss - why do you say so?

2014-12-15 18:35


@ Optimuss/ Icon8888, between sitting on paper losses for a few years versus company sinking under the weight of its own debt, i rather choose paper losses....

2014-12-15 18:38


why u trust desmond... he will only keep malton afloat. soon the gob asset will b stripe off.

2014-12-15 18:40


just like the last equine.

2014-12-15 18:40


patrick sold to desmond few yrs liao. u donno? patrick wear grass to perth liao u donno?

desmond don want to make it official is him don u find suspecious meh.

n how come got right issues?

2014-12-15 19:03


@ Optimuss...please correct me if i am wrong here.
Equine is due to Patrick Lim. Besides, GOB is currently applying for approval from MPPP Penang to approve their Batu Kawan phase (i don't know which phase) for sales launches early next year. Why bother to apply for approval and then strip the land later?

Just to reconfirm - i will drive down to Batu Kawan sales office to validate by this Saturday (20th Dec 2014). Just to be safe, will go up to Penang city council to check on the approval status for GOB Batu Kawan.

Times like this, better hit the ground to check the facts.

Besides, Malton have their own JV running at Batu Kawan (300 acres). Why Malton wants GOB's land (350 acres) for Batu Kawan? I don't think Malton has the capacity to develop over 600 acres of land.

Any reason why you said such as thing about asset striping ?

Thanks for the heads up.

2014-12-15 19:03


kancs, u r wastin my time, u want me to say good thing on gob isit?

ok gob will limit up and will goto 2.00 next year.
u happy? enuf. u r hopelss

2014-12-15 19:14


kansc, i m not a baby sitter. bye

2014-12-15 19:16


i only talk abt possibility. if u r so sensitive to bad news and only want hear good news u should ask icon888 directly, as he had promoted this counter in his 12 part writeup.

2014-12-15 19:21


Sorry Optimuss. I am really sorry for appearing rude/ sarcastic - because i felt kind of angry that the market turn the other way. Now that there is a possibility of asset stripping from GOB, i have just gone crazy.... at the spur of the moment, i have written stupid things that i have promptly deleted.

If this is true...then, this whole thing is just a wayang kulit....

I will never ever buy any shares for the rest of my life~!!

2014-12-15 19:22


It is better to know both good news and bad news...rumour can be very revealing sometimes.....
Anyway, i apologise again if i hurt your feelings with the dumb posting i made just now - both of which i have promptly deleted.

I think it is better to have more friends who will show the way - than to have enemies.

I apologise again. Thanks for bring up the possibility of asset stripping. I will definitely be on the look out for such signs....

2014-12-15 19:29


check equine history urself.

2014-12-15 19:30


If not mistaken, Patrick's demise is mainly due to the failure of PGCC (Penang GLobal city center) during the last 2x GEs. Thereafter, he sold Equine to the new shareholders - of which the market rumours that Desmond Lim is a substantial shareholder but his name does not appear on records. He maybe holding it via nominees. Equine is then renamed to Global Oriental Berhad as we know now.

But you are right.
Why want to hide behind a veil? Also, it seems there are business transactions between GOB and Malton - things like Malton selling the Sungai Long land to GOB and the contractors for Da'Mein is Domain Resources ( a company owned by Malton). It seems both GOB and Malton is inextricably related and sometimes, one wonders whether the transactions are done at arm's length or tilting in favour of Malton.

I am just afraid if Malton gets into trouble, Malton may "force" GOB to buy assets from Malton at unreasonable prices. Or this may lead to GOB being coerced into swapping its crown jewel, the Batu Kawan land to Malton based on very unfavourable terms to GOB.

Also, it seems Wee Beng Aun (formerly from Malton) is seen as the "director" of GOB whilst the chairman appears more like a figurehead.

I maybe thinking too much now...but these things are playing at the back of my head all this while....just that your previous comments really surface my fears~!

2014-12-15 19:58


wakakaka. sifu appear. the original sifu that shouted buy above 1.00

2014-12-15 20:05


hmm. hmmm...ic ic....ya kah, oh. like that ka...ic ic.

2014-12-15 20:18


dont scold him la, he bought based on your part 1-part 12 bullish report ma.


2014-12-15 20:42


ok next time i will tell him good stories. he is asking everyday.

2014-12-15 20:44


Hi Icon8888, thanks for your feedback. You have been very kind to me. I know that i maybe a pain in the ass...Being new in the share market, i went through your articles (from part 1 to 12) and your postings (as well as James70 posting) about GOB many times and have about 80% of what you said (in the few postings above) covered when applying for GOB's rights issue.

Except for the corporate governance part.
"I spoke to some investment bankers. They ruled out Malton merger with GOB. This is because Desmond is not the only strong shareholders. There are few other strong shareholders. There is check and balance in place. Desmond doesn't really have a free hand to abuse the company."

That is why when Optimuss drop a bomb about the asset stripping, i nearly shit in my pants. But it is better to be thought as a fool than to keep quiet. Sometimes, it is the things that we do not know that kill us.

A few more questions before calling it a night.
I noticed from the Analysis of Shareholdings, about 60% of the shares are at the hands of the retailers. Why this is not a tightly held company? Do you think this will change post rights issue? Whereby the investment banks who underwrite these rights will keep a portion for their own investments? Also, why investment banks will not underwrite a company if they think it is full of shit? I mean do investment banks owe the prospective rights applicants a duty of care? Or it is just a reputation risk to them?

Sorry for asking so many questions.

2014-12-15 22:40

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