Review

• Excluding a foreign exchange loss of RM6.7mn and gain on disposal of unquoted investments of RM1.8mn, POHUAT’s 9MFY23 core profit of RM20.8mn came in below expectations, accounting for 54.7% and 58.8% of ours and consensus full-year estimates. The variance was mainly due to softer-than-expected demand for furniture from the US.

• A second interim dividend of 2.0sen/share was declared, bringing the YTD dividend to 5.0sen/share. (9MFY22: 4.0sen/share)

• YoY, 9MFY23 core profit dropped by 63.2% to RM20.8mn as revenue fell by 39.9% to RM322.2mn. The lacklustre earnings performance was mainly due to softer US demand following the housing market downturn and household spending. Meanwhile, the furniture retailers also held back new orders while focusing on clearing the existing inventory.

• QoQ, 3QFY23 core profit surged by 136.6% to RM4.3mn while revenue was 12.7% higher at RM107.4mn. The stronger earnings performance was primarily driven by higher furniture shipment and a low base effect.

• Its net cash position improved further from RM275.3mn a quarter ago to RM288.5mn with zero borrowing.

Impact

• Given the weaker-than-expected results, we cut FY23 earnings forecasts by 16.5% after factoring in lower utilisation rates for both Malaysia and Vietnam plants.

Outlook

• Historically, the group reports stronger 4Q results, thanks to more robust demand as a result of the year-end festivals. Therefore, we expect the group to see further earnings improvement in the upcoming quarter. Meanwhile, the group remains one of the potential beneficiaries of a stronger US Dollar against the Ringgit.

Valuation

• No change to our target price of RM1.33, based on unchanged 8x CY24 EPS. Maintain Hold call on POHUAT. The robust balance sheet with a strong cash pile will help the group to sail through all the near-term headwinds.

Source: TA Research - 27 Sept 2023