Review

• Excluding a foreign exchange loss of RM0.3mn, POHUAT’s 1QFY24 core profit of RM10.6mn came in within expectations, accounting for 23.2% and 24.7% of ours and consensus full-year estimates.

• YoY, 1QFY24 core profit fell by 27.8% to RM10.6mn despite revenue increasing by 9.7% to RM131.1mn. The weaker bottom line was largely due to lower gross margin as a result of higher overtime expenses as well as higher sales & distribution and administrative costs. Meanwhile, the revenue growth was mainly driven by gradual demand recovery from US given that the US importers started to replenish the inventories.

• QoQ, 1QFY24 core profit surged by 166.1% to RM10.6mn while revenue was 23.8% higher at RM131.1mn. The stronger earnings performance was primarily attributed to higher sales orders as well as better margins from Vietnam operations thanks to improved factory utilisation rate and higher average selling prices for certain products.

• Its balance sheet remains solid with zero debt and a net cash position of RM290.7mn or RM1.05/share.

Impact

• Maintain our FY24 to FY26 earnings forecasts.

Outlook

• Overall, the US furniture market is on a slow recovery trajectory following the reduction of excess inventories. Hence, we believe POHUAT will likely receive more sales orders in the coming months. Meanwhile, the potential interest rate cut could help revive the US housing market.

Valuation

• Given a brighter outlook in the US furniture market, we increase the target PE multiple for POHUAT from 8x to 9x. Consequently, we tweaked the target price higher from RM1.40 to RM1.57, based on 9xCY25 earnings. Maintain Hold call on POHUAT.

Source: TA Research - 1 Apr 2024