Valuation / Recommendation

We have a SUBSCRIBE recommendation on Synergy House Berhad with a target price of RM0.52 based on FY24F EPS of 5.8 sen and a PE of 9x in line with its peer’s average.

We like the stock for its attractive expansion plans and strong design and development (D&D) capabilities, well-positioned to leverage on the growth of the global furniture consumption which is forecasted by SMITH ZANDER to grow at a CAGR of 2.88% from USD590.01bn in 2021 to USD642.46bn in 2024. The target price represents a potential return of 20.9% over the IPO price.

Investment Insights

Light asset model with strong D&D capabilities. The company outsources its manufacturing process of its home furniture to third party manufacturers. This allow its resources to be focused on design and development (D&D), hence the company is able to provide a variety of offerings and designs across bedroom, dining, and living room furniture. The company also has strong design capabilities and is able to consistently launch new home furniture designs with different specifications and enhanced functionality and appearance to suit the latest market trends and consumer preferences.

During 2019-2022 period, Synergy launched 2745 new designs of home furniture respectively. The company’s continuous launching of new designs by its D&D team helped to improve its competitive edge in the global and domestic furniture markets. The company plans to expand its offerings by diversifying into bathroom and kitchen furniture going forward.

B2C expansion. The company intends to expand its B2C business segment by expanding its customer reach via listing and selling its products on more third- party e-commerce platforms with new target markets and establish new warehouses in Muar, Johor within 2023 and Port Klang within 2027 as its e- commerce fulfilment centres. The company also plans to purchase more inventories for its third-party e-commerce fulfilment centres in overseas countries and proposed new warehouses in Muar, Johor. To enhance its revenue, the company plans to engage in more advertisement and promotion activities.

Experienced management team. The company is managed by Non-Independent ED Tan Eu Tah and The Yee Luen along with key senior management team who has more than 20 years of experience in the furniture industry. The company was able to achieve a 3-year revenue CAGR of 20.3% and a 3-year profit after tax CAGR of 15.05% from FY19 to FY22.

Risk factors. (1) Labour shortages. (2) Material supply chain disruption.

Source: Mercury Securities Research - 18 May 2023