This article first appeared in The Edge Financial Daily on September 26, 2019

White Horse Bhd
(Sept 25, RM1.15)
Maintain sell with an unchanged target price of RM1: White Horse Bhd’s challenging outlook is expected to be drawn out over the medium to long term given a lack of construction and property job awards ahead, coupled with supressed tile average selling prices (ASPs).

In our view, risk-reward remains negative with no expectation of near-term earnings recovery.

White Horse depends heavily on sales volumes from Malaysia’s property and construction sectors as they are drivers of both tile demand and ASP growth. Note that White Horse’s domestic sales account for about 72% of overall group revenue.

We believe that job flows from the property sector will continue to be weak as property developers focus on reducing existing inventories, while construction job awards will also stage a slow pickup.

Malaysia’s total ceramic tile production volume has been on a downtrend since 2013 and we believe this will continue in 2019.

White Horse is the market leader with total production capacity of 40.7 million square metres (sq m) (Malaysia: 28 million sq m; Vietnam: 12.7 million sq m).

However, we understand its utilisation rate has fallen to only 60% and 40% in Malaysia and Vietnam respectively.

Further, stiff ASP competition among peers has also caused the year-to-date tile ASP to fall 5% year-on-year (y-o-y).

Our model has imputed for a 15% y-o-y decline in White Horse’s tile demand in Malaysia and a 6% y-o-y decline in White Horse’s blended ASP in the financial year ending Dec 31, 2019.

We believe that the tile industry faces a challenging environment going forward as operational headwinds hinder significant earnings recovery.

Uncertain turnarounds of its revenue-dependent sectors — property and construction — also add to our negative view on White Horse.

There are several risk factors for our earnings estimates, price target and rating for White Horse.

Slower tile demand growth from the subdued property (residential/commercial) and construction sectors could adversely impact earnings.

Price competition among industry peers could also drive ASPs down. A stronger US dollar against the ringgit may also raise its raw material costs. — Maybank IB Research, Sept 25