Poh Huat Resources Holdings Bhd
(Dec 13, RM1.55)
Maintain buy with a higher target price (TP) of RM1.79: Stripping out a net exceptional gain amounting to RM8.5 million, Poh Huat Resources Holdings Bhd’s financial year 2018 (FY18) core profit of RM38.7 million came in within expectations, accounting for 99.3% and 96.4% of our and consensus FY18 full-year estimates.

 
A second interim dividend of two sen per share and a final dividend of two sen per share were declared, bringing the full-year dividend to six sen per share (FY17: eight sen per share).

Year-on-year, FY18 core profit declined 32.5% to RM38.7 million despite a 1.2% increase in revenue to RM621.9 million. The revenue growth was mainly contributed by higher shipment of furniture from Malaysian operations, driven by strong demand for panel-based bedroom sets from the US market. However, the group suffered from margin contraction due to higher raw material and manufacturing overhead costs. The profit before tax margins for Malaysia and Vietnam dropped 3.8 percentage points (ppts) and 1.9ppts to 11.1% and 7.4% respectively versus the same period last year.

Quarter-on-quarter, 4QFY18 core profit surged 76.6% to RM14.6 million as revenue increased by 30.7% to RM189.5 million. The strong performance was mainly due to seasonality, which led to higher sales from both Malaysia and Vietnam operations, as well as better margins resulted from the softer price of particle board during the reporting quarter.

After incorporating FY18 full-year results in our earnings model, we tweak FY19 earnings forecast 1.2% higher. We introduce FY21 earnings forecast of RM53.9 million, representing an earnings growth of 3.3%.

We expect the group to register better earnings moving forward as the price of particle board, the main material for manufacturing of panel-based furniture, is facing downward pressure. In addition, the imposition of 10% tariff by the US against furniture originating from China has diverted some of the orders to Southeast Asia. Hence, we believe the group will remain as a beneficiary of the trade war between the US and China.

Subsequent to the earnings adjustment, we revise the TP higher from RM1.77 to RM1.79, based on unchanged 10 times calendar year  2019 earnings per share. We maintain our “buy” call on the stock. — TA Securities Research, Dec 13