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This article first appeared in The Edge Financial Daily on March 19, 2019

Poh Huat Resources Holdings Bhd
(March 18, RM1.60)
Maintain buy with a target price (TP) of RM1.71:
Poh Huat Resources Holdings Bhd posted higher revenue and net profit for the first quarter of financial year 2019 (1QFY19) of RM197.1 million (+21.7% year-on-year [y-o-y]) and RM15.3 million (a rise of over 100% y-o-y) respectively. Sales for its Malaysian operations (+34.1% y-o-y) were driven by strong demand for panel-based furniture. Shipments for its Vietnamese operations increased by 13% on higher orders, with a product mix emphasising the affordable segment of the US market. The earnings before interest, taxes, depreciation, and amortisation (Ebitda) margin for 1QFY19 improved by 1.6 percentage points (ppts) y-o-y to 10.3%, partly due to lower raw material costs and better manufacturing efficiency. Adjusting for one-offs, core earnings came in largely within our expectations at RM15.4 million (+68.7% y-o-y).

 

Poh Huat’s 1QFY19 revenue increased by 4% quarter-on-quarter (q-o-q) to RM197.1 million. The higher turnover was mainly due to higher sales for both its Malaysian and Vietnamese operations. But its Ebitda margin fell by 2.4ppts q-o-q as: i) the Malaysian operations incurred higher raw material costs; and ii) the Vietnamese operations faced stiff pricing competition and higher direct labour costs. Competition over the past couple of years has intensified with more factories operating in Vietnam, resulting in surplus capacity and price competition. We expect demand for Poh Huat’s furniture products to remain resilient as it introduces more unique and differentiated ones.

We have left our FY19 to FY21 core earnings per share (EPS) forecasts unchanged for Poh Huat as there were no major earnings surprises. We have maintained our “buy” call on Poh Huat, with an unchanged TP of RM1.71, based on 7.2 times target price-earnings ratio applied to our calendar year 2019 core EPS estimate. We believe Poh Huat will continue to adjust its product offerings to cater to changes in demographics and market trends. The lingering uncertainty over the US-China trade war should also continue to present opportunities for Poh Huat to gain further market share from its peers, especially in the US furniture export market. — Affin Hwang Capital, March 15

 

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