Review

• Excluding a foreign exchange gain of RM2.0mn, POHUAT’s 1HFY24 core profit of RM15.6mn came in below expectations, accounting for 34.0% and 38.9% of ours and consensus full-year estimates. The variance was mainly due to lower-than-expected profit contributions from Vietnam's operations.

• A second interim dividend of 2.0sen/share was declared, bringing the YTD dividend to 4.0sen/share. (1HFY23: 3.0sen/share)

• YoY, 1HFY24 core profit dropped by 5.7% to RM15.6mn despite revenue increasing by 11.5% to RM239.5mn. The weaker bottom line was mainly attributed to higher operating costs and lower sales orders of home furniture in Vietnam operations. Meanwhile, revenue growth was mainly driven by the gradual recovery of demand for office furniture.

• QoQ, 2QFY24 core profit fell by 53.2% to RM5.0mn while revenue was 17.4% lower at RM108.3mn. The weaker earnings performance was primarily due to higher factory overheads and lower production levels in the Vietnam plant. The sales orders from the Vietnamese operations were soft due to weak household spending on home furniture in the US.

• Its balance sheet remains solid, with zero debt and a net cash position of RM299.9mn or RM1.08/share.

Impact

• Following the weaker-than-expected results, earnings forecasts for FY24/FY25/FY26 were reduced by 11.4%/4.5%/3.6%, respectively, after factoring in the lower utilisation rate for the Vietnam plant.

Outlook

• Overall, we expect the US furniture market to recover, albeit at a slow pace. The interest hike cycle in the US may finally end following the cooling off of inflation. Based on the latest Fed's guidance, the first-rate cut could occur at the end of 2024. This could help revive the US housing market.

Valuation

• After revising the earnings forecasts, we lowered the target price from RM1.57 to RM1.50, based on unchanged 9x CY25 EPS. Maintain a Hold call on the stock.

Source: TA Research - 27 Jun 2024