Stocks With Likelihood Of Corporate Exercise: Homeritz Corporation

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Insider Asia

Homeritz Corporation Bhd
Homeritz Corporation Bhd is a manufacturer of upholstered home furniture, whose products are exported to over 40 countries. The company is involved in Original Design and Original Equipment Manufacturing, and has its own brand of lifestyle furniture – ‘Eritz’.

Revenue and profits have been steadily growing since FY Aug 2011.  In FY2013, revenue increased 9.4% to RM112.9 million while net profit increased 1% to RM15.1 million. For the nine months to May 2014, it posted revenue of RM93.9 million, already making up 83.2% of FY2013’s total. Net profit for the nine months was RM15.1 million, almost equal to full-year profit in FY2013.

Homeritz trades at 1.8 times price-to-book and a trailing 12-month P/E ratio of 7.1 times, with above-average return on equity (ROE) of 27.4%. Balance sheet is strong with net cash of RM45.5 million as at 31 May 2014, equivalent to 22.7 sen per share or 28.9% of the current share price of 78.5 sen.

The company has set a minimum 40% dividend payout policy. The first and second interim dividends for FY2014 totalled 4.75 sen, amounting to 26.6% of the nine-month net profit. Interestingly, these interim dividends have exceeded total dividends of 3.75 sen in FY2013, with a high yield of 6.05% so far for 9MFY2014. On the back of rising earnings, dividends are likely to increase further.

Free float for Homeritz, which has a market capitalisation of RM157 million, is low, with the husband and wife team of Chua Fen Fatt and Tee Hwee Ing holding a total 71.8% stake. With a large cash pile, it will be interesting to see if it undertakes more expansion or increases dividends. Interestingly, it will cost Chua and Tee RM44.3 million to privatise Homeritz, which can be substantially recouped from the company’s cash reserves.

Homeritz_theedgemarkets

 

This article first appeared in The Edge Financial Daily, on October 27, 2014.