Homeritz’s 4QFY24 headline net profit decreased by 14.3% YoY to RM6.8m, primarily attributed to higher operating expenses, ie. labour costs and raw material costs. After adjusting for non-core items, Homeritz’s core net profit came in at RM8.2m (+13% YoY). Homeritz’s FY24 results were in-line with market’s estimate at 104% but slightly above our estimate at 108%. The overall sales volume dropped QoQ across all regions, due to normalisation effect following the restocking activities by US customers in the previous quarter. Moving forward into FY25, we anticipate that the sales volume will remain flattish, as customers had purchased ahead for the year-end festive season to avoid port congestions. Hence, we maintain our earnings projections for FY25-26F and reiterate our Neutral rating on Homeritz, with a higher TP of RM0.62 as we roll over our valuation to FY25F based on a 9x PE multiple. On a side note, Homeritz has proposed a final single dividend of 1.7sen in FY24 (FY23: 1.6sen), translating into a dividend yield of 3%.

• Results review. Homeritz’s 4QFY24 revenue increased 22.8% YoY to RM56.5m, driven by stronger export sales, supported by the acquisition of new clientele. Despite YoY increase in sales volume, the Group’s PBT fell 12% YoY to RM9.2m in 4QFY24 from RM10.4m in 4QFY23, mainly due to a c.40-50% YoY spike in both labour and raw material costs. Consequently, Homeritz’s PBT margin and net profit margin was down 6.4% and 5.2% respectively. On a QoQ basis, we noticed a drop in sales volume particularly from US customers, leading to a lower utilisation rate of 40%-50% in 4QFY24, down from 60% in 3QFY24.

• Outlook. Moving forward into FY25, we maintain a cautious outlook as operating expenses are expected to stay elevated due to the recent minimum wage hike from RM1,500 to RM1,700, as announced in Budget 2025. Additionally, the price of leather, a key raw material, is likely to trend higher, further contributing to cost pressures. Despite the strengthening of MYR against USD, the impact on Homeritz is minimal as the Group is able to pass on costs to customers, especially with shorter-term order flows. Nevertheless, we remain optimistic about the Group's ongoing initiatives, particularly its active participation in furniture exhibitions to attract new clientele.

Source: PublicInvest Research - 28 Oct 2024