Homeritz’s Corporation Bhd
HOMERITZ’S (Fundamental: 1.95/3, Valuation: 1.3/3) share price has done very well since we highlighted the stock back in November. From 78 sen, the stock rose to a high of RM1.21 in late-February. At the prevailing price of RM1.16, investors would have made a handsome gain of 48.7% in little over 3 months. 

To recap, Homeritz manufactures upholstered home furniture — dining chairs, sofas and bed frames — under Original Design Manufacturing (including its own brand, Eritz) and Original Equipment Manufacturing. Almost all of its products are exported, to over 40 countries. Key markets are Asia, Australia, Europe and the US. Notably, stocks for wood furniture companies, as a whole, have fared very well. 

Despite recent gains, we still like Homeritz for its steady earnings, attractive yields and above-average net margin.  Revenue has grown consistently, from RM89.8 million in FYAug11 to RM127.2 million in FY14 while net profit increased an outsized 87.3% from RM10.8 million to RM20.2 million. Over the same period, net profit margin expanded from 12.03% to 15.92% on greater economies of scale and increased productivity and efficiency. For 1QFY15, the company posted slightly lower y-y revenue of RM33.4 million, due to lower sales in upholstered bed frames. Net profit declined 26.4%, as a result of higher costs for leather and lower utilisation rate. 

Nevertheless, we believe that Homeritz stands to gain from strengthening demand, supported by the unfolding recovery in the US.  In addition, with most of its products sold in USD while an estimated one-third of production cost is in ringgit, the company is a beneficiary of the stronger dollar. 

Last but not least, Homeritz has consistently paid dividends. In fact, payout has been increasing, from 40.82% in FY12 to 50.38% in FY14. For FY14, the company paid out 5 sen per share, translating to a yield of 4.3%.

This article first appeared in The Edge Financial Daily, on April 6, 2015.