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This article first appeared in The Edge Financial Daily on April 6, 2018

White Horse Bhd
(April 4, RM1.89)
Maintain hold with a target price (TP) of RM1.84:
White Horse is the largest ceramic tile manufacturer in Malaysia with a market share of about 31%. Earnings prospects are still largely determined by the residential/commercial property cycle, which remains in a cyclical downturn. That said, we expect White Horse earnings to bottom out in financial year 2018 (FY18) before gradually picking up from FY19 as supply and demand rebalances in the residential/commercial sector.

We estimate local industry tile capacity at about 105 million sq m of which White Horse  is the market leader with a 31% market share. It operates 20 production lines across its manufacturing facilities in both Malaysia (15 lines) and Vietnam (five lines) with 28 million sq m and 12.65 million sq m capacity respectively. Through continuous upgrades to its machinery, White Horse has the capability to manufacture a full range of tiles such as ceramic wall and floor tiles, homogenous and glazed porcelain and multi-effect tiles.

White Horse is heavily dependent on the residential/commercial property sector to drive overall tile industry demand and average selling price growth. Given that the bulk of its sales is domestic (FY17: 71%), this makes it vulnerable to the current subdued property market. However, we believe White Horse’s operations in Vietnam may improve in FY18 on the back of positive economic factors which could mitigate further earnings downside moving forward. Further, White Horse also plans to increase its export volume in the light of soft domestic demand. As such, we forecast flattish revenue growth of -1% for FY18E and positive 3% revenue growth per year in FY19E/FY20E alongside an expected gradual recovery in the property market. Our FY18E forecasts also imply a 7% year-on-year fall in core net profit.

We initiate coverage with “hold” and a TP of RM1.84 based on FY18 price-to-book value (PBV) of 0.57 times (1SD below its historical 12M forward PBV mean). Despite our expectations for weaker earnings in FY18E, we believe the stock has bottomed and will find support from its market leading position to aid its recovery when the cycle turns. White Horse also offers decent dividend yields of more than 3%. — Maybank IB Research, April 5

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