KUALA LUMPUR: Research firms have raised their target prices for Poh Huat Resources Holdings Bhd due to robust demand for furniture from the United States and backlog orders for delivery until July next year.
Public Invest Research is maintaining an “outperform” call with a higher target price of RM2.15, compared with RM1.80, based on 10 times earnings per share for calendar year 2021 (CY21).
The research house has raised its earnings forecast for financial year ending Oct 31,2021 (FY21) and FY22 by 21% to 30%, respectively, saying that furniture demand from the US is expected to remain solid, driven by an increase in home furnishing spending and trade diversion arising from the US-China trade war.
Poh Huat posted a stronger set of financial results in its fourth quarter ended Oct 31,2020 with a net profit of RM22.1mil, underpinned by a robust demand from the United States, better economies of scale from both Malaysia and Vietnam manufacturing base, as well as lower raw material cost.
Public Invest Research said Poh Huat’s net profit margin improved 10.2% in the fourth quarter compared with 7.7% a year ago on the back of better economies of scale following the ramp up in production.
“In addition, profit margins were also supported by the lower raw material prices and better labour efficiency, ” it added.
In view of the stronger demand from the US, Public Invest Research said the group has earmarked around RM30mil for automation and capacity expansion in its Malaysia operations which could potentially increase its capacity by 30% in FY22.
“Moving forward, we expect furniture demand from the US to remain robust, supported by the strong US new home sales which should augur well for Poh Huat, given that the US is one of its major export markets accounting for around 90% of total sales, ” it noted.
Meanwhile, TA Research has also revised its target price higher to RM1.88 from RM1.77, based on unchanged earnings per share of 10 times for CY21.
“We introduce FY23 earnings forecast of RM56.2mil, representing an earnings growth of 4.5%, ” the research house said.
However, it believes Poh Huat could be affected by delay in shipment from the global shortage of containers in the upcoming quarters.
TA Research noted that the weakening of US dollar against the ringgit could erode the group’s margin, given that the majority of the Poh Huat’s revenue is dominated in US dollar.
As such, the research house has downgraded the stock to “hold” from “buy” due to limited potential upside.
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