PETALING JAYA: Rising raw material costs may be a challenge for Poh Huat Resources Holdings Bhd for its financial year ending Oct 31,2021.
However, the outlook for the furniture maker remains positive, thanks to growing demand, particularly from the United States, that could help mitigate the headwinds on its bottom line.
This optimism could translate into some upside potential to Poh Huat’s shares.
For instance, TA Research, expected an upside potential of 34% from the counter.
The brokerage raised its target price for Poh Huat to RM2.21 from RM2.16 previously, and maintained its “buy” recommendation on the stock.
The revised target price came after TA Research rolled forward the valuation year to 2022 with an unchanged earnings multiple of 10 times.
Poh Huat’s shares closed four sen lower last Friday at RM1.65.
“The management expects the demand for furniture to remain healthy in the upcoming quarters, backed by strong orders for delivery until October 2021, ” TA Research said.
“Nevertheless, management guided that the raw material prices are edging up. Pertaining to the recent global shortage of shipping containers, management said that it is still manageable given that most of the sales are in ‘free on board’ term, ” it added.
Meanwhile, Public Investment Bank Research has maintained its “outperform” rating on Poh Huat, with an unchanged target price of RM2.15 based on 10 times 2021 earnings.
“We expect Poh Huat’s sales to recover moving forward as we gather that operations have resumed. This is supported by the encouraging orders for delivery from its US customers till October/November 2021, ” the brokerage said.
“In addition, the congestions in the ports which had affected shipments previously have improved as well, ” it noted.
Public Invest said it expected furniture demand from the United States to remain sturdy, mainly driven by the increase in home furnishing spending due to the growing remote working trend and the trade diversion from the US-China trade war.
Poh Huat last week announced a first interim dividend of one sen per share.
Dragged by production halt at its Malaysian plants, for the first quarter ended Jan 31,2021, Poh Huat’s net profit fell 15% year-on-year (y-o-y) to RM9.63mil, while revenue fell 2.7% y-o-y to RM183.66mil. Earnings per share slid to 3.63 sen from 4.92 sen.
“In Malaysia, production and shipment of furniture were interrupted by a production halt from Jan 25 to Feb 3, following a voluntarily Covid-19 testing where positive cases were confirmed in our Muar factories, ” Poh Huat said its filing with Bursa Malaysia last week.
“The lower shipment from Malaysia were, however, mitigated by a 21% increase in turnover from our Vietnamese operations, where operations continued uninterrupted, ” it added.
The group noted that demand for home and office furniture remained firm from the sustained orders from its US customers, in line with their priorities in securing shipments and maintaining adequate inventories amid tighter supply and longer lead time among manufacturers.
“Premised on the strong retail and housing prospects, we are of the view that the global furniture trade will continue its growth in 2021, as we adapt to the new normal and as global economic activities return to normalcy, ” Poh Huat said.
“We are confident that demand for our products will remain strong in the coming year as the transition of power in the US is behind us and household income and spending among US middle and lower income households are expected to benefit the most from US’ third stimulus package of US$1.9 trillion, ” it added.