• Maintain HOLD (TP: RM1.34). Rhong Khen International (RKI) reported a 9.5% YoY increase in revenue for 1QFY25, driven by higher sales from its furniture plant in Vietnam and sawmill plants. Net profit rose to RM4.0mn (+7.7% YoY), aligning with our and consensus estimates accounting for 22.8% and 20.8% of FY25 forecasts respectively. RKI declared a first interim single-tier dividend of 3.0 sen per share in 1QFY25 (1QFY24: no dividend declared), translating to 143% payout. We maintain a HOLD call with an unchanged TP of RM1.34. Note that our current TP is derived from a 5-year average historical forward PER of 14.8x and a projected FY25F EPS of 9.0sen.

• Key highlights. On a QoQ basis, RKI’s revenue remained relatively flat, edging up 1.6% to RM132.1mn. This was supported by improved sales from furniture plants in Vietnam due to higher shipments, which were offset by lower sales from Malaysia’s furniture, sawmill, and panel board lamination plants, driven by weaker local and export demand. Meanwhile, the bottom line improved significantly to RM4.0mn from a LAT of RM2.5mn in the previous quarter, reflecting higher PBT attributable to lower selling and distribution expenses, absence of inventories written down expense, andthe reversal of over-provisioned tax expenses from prior years.

• Forecast. No change to earnings forecast.

• Outlook. Despite better revenue this quarter, we view the near-term outlook for the furniture industry as challenging due to subdued orders. Additionally, the sector remains vulnerable to economic uncertainties that could impact growth prospects. Notably, the industry has high price elasticity, with demand closely tied to changes in income levels and economic conditions.

Source: BIMB Securities Research - 29 Nov 2024