Background

Founded in 1997, Homeritz is an integrated designer, manufacturer and exporter of a complete range of upholstered home furniture, comprising leather and fabric-based sofas, dining chairs and bed frames. The Group primarily undertakes Original Design Manufacturing (ODM) and Original Equipment Manufacturing (OEM) activities whereby ODM part of the business contributing at least 85% of its revenue. Homeritz has also created its own brand of lifestyle furniture series under the name of “Eritz”.

To date, Homeritz has built a diverse customer base spanning across more than 50 countries, including Europe, Australia, New Zealand, North and South America, South Africa and the Middle East. The Group has various accolades in recent years, including the Golden Bull Award in 2008 (ranking 1st out of 100 outstanding SMEs), the Enterprise 50 Award for 2 consecutive years in 2008 and 2009; and the ‘Product Excellence Award’ and ‘Asian Furniture Leadership Award’ at the Malaysian Furniture Leadership Awards in 2009.

Based on Financial Year (FY) 2015 full year results, Homeritz achieved RM 146 million turnover, which is considered to be a small enterprise. Other aspects of the company’s latest financial results are illustrated in the table below.

Financial Brief

Since FY2011, Homeritz’s revenue has been in a continuous growing trend till FY2015 from RM 90 million to RM 146 million per annum. This represents a 63% increase in 5 years or an average year to year increase of 13%.

Similarly, in net profit, it has been on an increasing trend for these 5 years from RM 10 million to RM 23.5 million, which translates to a 2.3 times increase in 5 years or average year to year increase of 21%. Having a higher growth trend in net profit as compared to revenue is one of the most desirable characteristic of a growing company as it shows sound cost management and growing net margin of the company’s product.

Net profit margin wise, Homeritz scores a good 16% as well as having an excellent Return of Equity at 26.76%.

On company’s debt, Homeritz has very low total debt to equity ratio of 0.02, signifies that the company has extremely little borrowings as compared to its shareholder equity value. The company’s current ratio of 5.15 is extremely high and a fantastic cash ratio of 2.98.

In terms of dividend, Homeritz pays a high 4.54% dividend yield which translates to 4 cents per share in FY2015

In conclusion, although Homeritz is a small scale SME, its financial figures are top notch and very consistent from year to year. Therefore, the decrease in its share price from its 52 week high of RM1.23 to current level of around RM0.865 is likely due to overall bearish market and negative global economy sentiments instead of due to bad company performance. Outlook of the company’s performance remains positive as this export driven company will benefit should the strengthening of US dollar against Ringgit continue for the foreseeable future.

Whether is now a good opportunity to invest in Homeritz, from fundamental analysis point of view is definitely a big yes as the company’s financials are strong and year to year performance is consistent. Moreover, current price is already very close to 52-week low of RM0.86 and PE ratio is at a good 8.89. Homeritz share price will likely get a boost and reflect its true value during the next quarterly announcement provided that it comes with good set of results.

Next quarterly results announcement should be on the month of Jul 2016 for Q3 results.

iVolume Spread Analysis (iVSA) & comments based on iVSAChart software – Homeritz

Based on Homeritz 6-month weekly chart, the market has been congesting for over 4-5 months with early Jun 2016 failure to breakout comes in conjunction with strengthening of Ringgit. There is also a support at around RM0.86 level.

Currently, there is another Sign of Strength (green arrow) detected in early July 2016 and there seems to be some evidence of smart money accumulation around RM0.86 - RM0.88 levels.

Consider to accumulate at these level if you are aggressive trader/investor. But if you wish to seek confirmation before you enter this trade, then enter after Homeritz breaks above RM0.90 with volume. Either way, do remember always to set your stop loss level and position sizing for prudent risk management before you enter any trades.

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This article only serves as reference information and does not constitute a buy or sell call. Conduct your own research and assessment before deciding to buy or sell any stock. If you decide to buy or sell any stock, you are responsible for your own decision and associated risks.