Better performance seen for Homeritz on solid orders

The Homeritz factory in Muar

PETALING JAYA: Following a strong first quarter, furniture maker Homeritz Corp Bhd should see a better performance for the financial year ending Aug 31, 2022 (FY22), buoyed by solid orders and improved capacity.

The company posted a 15.9% year-on-year increase in net profit to RM8.47mil in the first quarter from RM7.3mil a year ago.

Revenue, meanwhile, was at RM58.54mil compared to RM52.54mil previously.

The increase in revenue was mainly attributed to the strengthening of the US dollar and the progressive increases in the selling prices of some of its products.

In a recent report, Hong Leong Investment Bank Research (HLIB Research) highlighted that Homeritz’s results came in above expectations.

“First-quarter core profit after tax after minority interest (Patami) of RM7.4mil (Fourth quarter of FY21: -RM0.1mil) made up 26.5% and 26.7% of our and consensus’ full year forecasts, respectively.

“We deemed the results above our expectation as we had expected a weaker first-quarter contribution due to the two weeks of productivity loss during the quarter,” it said.

The first-quarter Patami figure was arrived at after adjusting for foreign exchange gains of RM1.1mil.

The group had temporarily halted production in June last year under the movement control order 3.0 and only resumed production of furniture in mid-September after its workers were vaccinated.

Given that Homeritz’s first-quarter earnings were impacted by the two-week loss of production in September, HLIB Research expects earnings to improve in the subsequent quarters as it will have more operating days ahead.

It said although raw material costs remain elevated, it believes Homeritz will be able to pass on most of these costs.

“Historically, Homeritz managed to maintain a stable gross profit margin due to its superior pricing power as an original design manufacturer (ODM).

“We remain positive on the group’s outlook, supported by its strong order outlook (production lead time: 120 to 150 days) as well as its improved capacity, contributed by its new factory and improved production efficiency.

“Besides, we understand that the group had submitted an application to bring in additional foreign workers, which should further boost its production volume once the foreign workers come in,” the research unit said.

Consequently, it maintained its “buy” recommendation on the stock with a higher target price of RM0.87, pegged to 11.5 times FY22 core earnings per share of 7.5 sen.

HLIB Research also raised its earnings forecast for the group by 11.6% and 7.3% for FY22 and F23, respectively, to account for stronger sales volume arising from the group’s improved production planning.

The research firm also introduced FY24 forecast revenue of RM247.7mil and net profit of RM35.2mil.

“We continue to like Homeritz for its position as an ODM manufacturer, which allows it to withstand cost pressure and command better margin.

“Furthermore, its new factory and improved production efficiency should contribute to better production volume, going forward.

“In addition, the group has a healthy balance sheet with net cash of RM91.8mil or net cash per share of 22 sen, which is 37.9% of its market capitalisation,” the research house said.

Homeritz, however, cautioned that the outlook for 2022 remains challenging and uncertain as the full impact of the Covid-19 pandemic has not been ascertained.

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