Homeritz’ new machines expected to improve efficiency rate, save costs

TheEdge Mon, Jul 30, 2018 10:38am - 5 years View Original


Homeritz Corp Bhd
(July 27, 68.5 sen)
Maintain hold with a higher target price (TP) of 76 sen:
The first nine months of financial year ending August 31, 2018 (9MFY18) core earnings of RM15.0 million (-33.9% year-on-year [y-o-y]) came in above our expectation, accounting for 83.5% of our full-year forecast. The upward surprise was mainly due to lower-than-expected operating cost arising from the recent automation measures.

Homeritz declared a first tier interim dividend of one sen per share (unchanged y-o-y). For full year, we are projecting a total dividend per share (DPS) of three sen, translating into dividend yield of 4.3%.

Third quarter ended May 31, 2018 (3QFY18) revenue fell 1.5% due to lower sales volume (number of containers sold declined by 5%). However, core earnings (+27.5%) were boosted by lower operating cost arising from reduced overtime and outsourcing work.

3QFY18 revenue fell by 10.7% due mainly to the 11% strengthening of the ringgit against the US dollar (3QFY18: RM4.04 per dollar versus 3QFY17: RM4.48 per dollar). Earnings dropped by 40.9% due to a weaker dollar, higher labour cost, and higher raw material cost (in particular, foam, spray and packaging).

Revenue of the 9MFY18 remained rather flat (-2.3% y-o-y). However, margins were under pressure (-8.7 percentage points y-o-y) due to higher raw material (foam, spray and packaging) and higher labour cost.

Homeritz recently invested in several new machines, which we believe moving forward, would improve efficiency rate and result in cost savings (fewer number of workers needed).

We raise our FY18 to FY20 earnings by 7% to 13% respectively as we adjust for lower operating cost. — Hong Leong Investment Bank Research, July 27

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