White Horse Bhd
(Nov 21, RM1.11)
Maintain sell with a lower target price (TP) of 99 sen: White Horse Bhd’s third quarter of financial year 2019 (3QFY19) core net loss was higher than our/consensus expectations. With no signs of a meaningful recovery in tile demand and the tile average selling price (ASP) in the near term, White Horse faces a challenging operational outlook.

 
Its 3QFY19 core net loss of RM15 million was worse than our/consensus estimates and deepened the loss of RM1 million for the year-ago period, as did the cumulative nine-month period of FY19 (9MFY19) core net loss of RM33 million versus the 9MFY18 loss of RM2 million. The shortfall was mainly due to higher-than-expected tax expenses as a catch-up for those was previously deferred.

White Horse’s 3QFY19 revenue declined by 22% year-on-year (y-o-y) mainly due to weaker revenue contributions from its Malaysian business (down 26% y-o-y) where sales volume was adversely affected by softer tile demand and ASPs. Further, its Vietnam operations also reported lower revenue (down 13% y-o-y) given higher industry competition. Meanwhile, we believe White Horse’s loss before interest and tax widened as a result of clearance of obsolete stock in both Malaysia and Vietnam at below break-even prices.

Upon factoring in the weak set of results, we raise our FY19 core net loss estimate by 18% but leave our FY20-FY21 earnings estimates unchanged on expectations of a slight increase in export sales. We understand White Horse has secured two customers in the US that have ordered a range of its mid- to high-end glazed porcelain tiles totalling about 10% of its total capacity (about four million sq m) to be delivered in FY20. Historically, export sales contributed to about 15% of its total sales. Overall, White Horse still faces a challenging outlook until domestic tile demand (from construction and property developers) significantly improves.

We reiterate “sell” with a lower TP of 99 sen (based on unchanged 0.36 times estimated FY20 price-to-book value, about three standard deviation below the long-term mean). — Maybank IB Research, Nov 21