Results Review

• Pohuat’s FY16 core profit of RM44.8mn was a tad below our expectation, accounting for 93.4% of our full-year estimate. The variance was due mainly to slightly lower-than-expected margin for its operation in Vietnam.

• Pohuat has declared a final dividend of 2sen/share, bringing FY16 dividend payout to 8sen/share (FY15: 5sen/share). Pohuat has increased the frequency of dividend payment from a yearly basis for FY13 to a quarterly basis for FY16.

• YoY, FY16 core profit was marginally higher (+1.0%) while revenue jumped 17.9% to hit record full-year revenue of RM535.2mn. The decline in margin was dragged largely by lower margin from the Malaysian’s operation (PBT margin -2.2% pts to 12.2%) and higher taxation (+4% pts to 21.0%).

• QoQ, revenue and core profit surged 21.0% and 69.4% respectively due to seasonality. The operation in Vietnam achieved record quarterly revenue and profit due to higher shipping volume and added capacity from the reconstruction of part of the factory in Binh Duong, Vietnam, after a fire incident last year. However, the revenue from its Malaysian’s operation was lower as it carried out product rationalisation and experienced gestation period for new products, which included introduction of panel based bedroom sets.

Impact

• Maintain earnings forecasts.

Outlook

• We expect economics policies to be implemented by the newly-elected US President, Donald Trump, which include massive rebuilding of infrastructures, tax cuts and jobs creation will benefit the US economy in coming years. Coupled with the uptrend in the US housing starts, a bellwether for the group’s furniture export to US, we expect Pohuat’s earnings prospects to remain robust in the foreseeable future.

• On top of the positive outlook, the group’s financial position has been strengthening over the years. The group’s net cash position has been improving as shown in Exhibit 2. As of end-October 2016, it is in a net cash position of RM42.7mn (18.8sen/share)

Valuation

• No change to our target price of RM2.08, based on unchanged 10x CY17 EPS. Reiterate our BUY call on POHUAT. Besides the undemanding valuation and positive industry outlook, it offers decent dividend yield, and supported by a strong balance sheet. The strengthening of the US Dollar benefits the group as more than 90% of the sales are denominated in US Dollar.

Source: TA Research - 23 Dec 2016