PETALING JAYA: Homeritz
Corp Bhd’s growth outlook is expected to remain soft due to the elevated interest rates and a potential economic slowdown in the North America (NA) and European Union (EU) regions.
Hong Leong Investment Bank (HLIB) Research said the home furniture manufacturer’s core profit after tax and minority interest (Patami) for the second quarter of financial year 2023 (2Q23) of RM5.3mil, declined by 45.4% year-on-year (y-o-y), bringing the sum for the first half of FY23 to RM11.3mil, down by 34.1% y-o-y.
“The results came in below both ours and consensus expectations, accounting for 42.4% and 42.6% of full-year forecasts, respectively.
“The negative deviation was mainly due to a lower-than-expected sales volume,” said HLIB Research in a report yesterday.
On a quarter-on-quarter basis, the group’s revenue increased marginally by 2.2% on the back of an improved sales volume.
Core Patami decreased by 11.6% because of higher operating cost from staff bonus payouts.
“Revenue decreased by 42.2% y-o-y and 38.2% year-to-date mainly due to a lower sales volume due to high base last year as the group caught up on production following an earlier production halt.
“It was also a result of a decline in demand this year due to elevated inflation in the NA and EU regions.
“Consequently, core Patami decreased by 45.4% y-o-y and 34.1% year-to-date,” said HLIB Research.
The research house slashed its FY23, FY24 and FY25 forecasts by 10.2%, 6.3%, and 3.8% respectively to account for lower sales assumptions.
“The group’s earnings remain soft as demand for furniture from the NA and EU regions, which are key markets for Homeritz, continues to be lacklustre as their respective central banks continue to hike interest rates to battle inflation, negatively impacting home sales.
“Looking ahead, we continue to be cautious in view of a potential economic slowdown in the West.
“This, in turn, could cause consumers to be increasingly prudent with their spending.
“The challenging outlook should continue in the near to mid-term as long as rates remain elevated as mortgage payments will remain high,” said the research house.
HLIB Research has maintained a “sell” call on Homeritz with a target price of 42 sen.
“Nonetheless, the company has a healthy balance sheet with net cash of RM163mil or a net cash per share of 35.2 sen (70.3% of its market capitalisation).
“This will allow it to weather through this challenging period,” said the research house.
