Friday 29 Mar 2024
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KUALA LUMPUR (June 2): Shares in Homeritz Corporation Bhd gained as much as eight sen or 5.83% in the early trade today on the news that it acquired the remaining 35% of Embrace Industries Sdn Bhd (EISB).

Homeritz (fundamental: 1.95; valuation: 1.5) said the purchase consideration was RM12.17 million in cash.

As at 10.32am, the stock pared down part of its gain to trade at RM1.42, still up five sen or 3.65%, after rising to a high of RM1.45 earlier.

Some 663,500 shares were seen having been traded. The current price gave Homeritz some RM274 million in market capitalisation.

The integrated designer, manufacturer and exporter of a complete range of upholstered home furniture told Bursa Malaysia yesterday that the principal activity of EISB is to design, manufacture and sell metal frames for dining chairs as well as metal based upholstered furniture and furniture parts.

It said the acquisition will allow Homeritz to consolidate all revenue and profit of EISB which in turn contribute positively to the earnings of the group as a whole in future.

Homeritz was one of the Insider Asia's Top 10 Stocks for 2015.

In a note to clients today, Hong Leong Investment Bank Research (HLIB Research) maintained its Buy call on the stock with a higher target price (TP) of RM1.82 from RM1.21.

The firm also upgraded the group's earnings forecast for financial year 2015 (FY15) and financial year 2016 (FY16) by 3% to 18.5% to reflect positive impact of the acquisition.

"FY15 upward adjustment minimal given that it will only impact earnings by 2 months," the firm said.

Nevertheless, HLIB is positive on the acquisition as the purchase consideration translates to price of 3 times price to earnings ratio (P/E) vis-a-vis the group's pre-acquisition P/E of 11 times.

"It would result in 17% increase in Profit After Tax (PAT) and 21% compounded annual growth rate (CAGR) in the group's Profit After Tax and Minority Interests (PATAMI) from financial year 2014 (FY14) to financial year 2016 (FY16)," it said.

The firm noted Homeritz's FY15 net cash will reduce to RM52 million from RM65 milllion.

"Balance sheet remained healthy as post acquisition cash is equivalent to 18.6% of market price," it added.

HLIB said Homeritz had proposed a bonus issue (1 for 2 basis) and free warrants (1 for 4 basis), which targeted to be completed by third quarter financial year 2015 (3QFY15).

"Post-bonus issue, our TP would be adjusted from RM1.82 to RM1.21 while share price will adjust from RM1.37 to 91 sen," it added.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)

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