GIVEN the weaker ringgit against the US dollar, furniture stocks have attracted strong investing interest. One such stock is Poh Huat Resources Holdings Bhd, which has seen its share price shoot up 19% in the past two months. It closed at RM1.86 last Wednesday, valueing the company at only 8.44 times historical earnings.

In fact, based on a valuation of 10 times the expected earnings for the financial year ending Oct 31, 2017 (FY2017), TA Research has a target price of RM2.08 for Poh Huat.

The company’s warrants are valued at a marginal discount of 0.5% to the mother share, based on last Wednesday’s closing of 85 sen and the exercise price of RM1.

The warrants appear to be a cheaper entry to ride the furniture maker’s potential upside.

Assuming the warrants remain at zero premium to the mother share, if Poh Huat’s share price rises 11.8% to RM2.08, the warrants should gain 27% to RM1.08. This is simply due to the gearing effect of the warrants.

Keep in mind that the derivatives expire in October 2020, which is more than 3½ years away.

However, Poh Huat pays out a relatively high dividend. In FY2016, the company paid out eight sen in dividends for the year (a dividend of five sen was paid in FY2015). Since the warrant is not entitled to the dividend, warrant holders will lose out unless they convert their warrants.

Poh Huat’s current dividend yield is a decent 4.3%.

Also, Poh Huat is cash rich, with RM42.7 million in cash. Given that the company has a market capitalisation of RM397.1 million, it is holding net cash of 20 sen per share.

In terms of earnings, Poh Huat’s FY2016 core profit was RM44.8 million, up 1% year on year. Revenue expanded nearly 18% to RM535.2 million.

“The operation in Vietnam achieved record quarterly revenue and profit due to higher shipping volume and added capacity from the reconstruction of part of the factory in Binh Duong after a fire last year,” says TA Research in a report.

Looking ahead, analysts are counting on the steady recovery of US housing starts, which should support demand for furniture exports. Massive spending on infrastructure, tax cuts and job creation in the US, driven by President Donald Trump, are expected to support the US economy and, in turn, boost housing starts.

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