POH HUAT RESOURCES HOLDINGS
KLSE (MYR): POHUAT (7088)
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CS Tan
4.9 / 5.0
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
optimus9199
2,794 posts
Posted by optimus9199 > 2016-06-11 20:52 | Report Abuse
oes investors are revisiting the sector after a heavy selldown in Jan 2016 due to strengthening of the ringgit? More importantly, has value begun to emerge given the cheap valuations and improved 1QFY2016 earnings?
As furniture manufacturers ride the upward cycle, the industry is still under covered by many analysts, resulting in it being one of the cheapest export sectors. The wood furniture sector is trading at only 8 times its trailing 12 month earnings versus rubber glove makers’ 18.7 times and electrical and electronics makers’ 14.8 times.
Although wood furniture is the most value added segment of the timber industry, upstream players command richer valuations – wood related products and board markers are trading at a trailing PER of 13.8 times while timber companies are trading at a trailing PER of 10 times.
Furniture stocks like any other export stocks, could be volatile in the short term as the sector’s share price performance is highly correlated to foreign exchange rates and emerging market currencies have become more volatile. Looking beyond the short term volatility, the sector’s medium term growth should be supported by positive growth in the US furniture industry as the sector is following the broader economic recovery and the improving housing market in the US.
The aggregate sales of the four largest furniture markers in the past five years till June 2016 – Liihen, Latitude, SYF and Pohuat, which accounted for nearly 80% of the sector’s total market cap. One notable observation stands out; sales to the US have surged in the last two years (2014-2015) and the industry leaders seem to have captured most of the growing demand from the nation.
Looking ahead, the key question is: Will the industry demand continue to grow? The answer is likely YES as there is still ample room for cyclical upside in residential investment in the US. US residential investment as a percentage of GDV has been recovering since 2011 from the all time lows of the 2008 subprime crisis.
In the 1QFY2016, furniture shares were generally weighted down by concerns that a stronger ringgit could hurt the bottom line. However judging by the latest results, furniture makers are still benefiting from the forex gains. Save for TAFI and Latitude, all furniture markers reported improve earnings from a year ago. Because, although the ringgit has recovered against the USD in 1Q2016, it is still weaker compared with 1QFY2015.
Take liihen, for example. Its 1QFY2016 net margin improved by 3.1% to 12.7% from 9.6% a year ago, largely boosted by the USD strength against the RM.
However who wish to ride the US recovery housing market through export oriented furniture stocks should also take note that not all furniture companies have exposure to the US economy. Out of the 13 companies, only Liihen, Latitude Tree, Poh Huat, and SHH Res have large US exposure. Coincidentally these four companies tend to have superior financial metrics, stronger balance sheet and pay out better dividends.