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Wednesday, March 21, 2018

Disappointing Q1 results pull down Poh Huat shares

Wednesday, 21 Mar 2018

Furniture maker’s stock falls to its lowest in 2½ years
PETALING JAYA: Shares of Poh Huat Resources Holdings Bhd
image: fell to its lowest in two-and-a-half years after reporting disappointing results for its first quarter ended Jan 31, 2018, a day earlier.

The counter yesterday lost 14.5%, or 22 sen, to close at RM1.30.

Sentiment towards Poh Huat’s shares appeared to have turned sour since the start of the year, as the ringgit continued to strengthen against the US dollar, on which the bulk of its sales were based, as the furniture maker’s main customers were from the United States.

Year-to-date, Poh Huat’s shares had lost 27.4%, or 49 sen.

The company on Monday announced a net profit decline of 64.7% to RM6.24mil for its first quarter from RM17.67mil in the corresponding quarter of the preceding year.

It attributed the steep decline in its earnings to the strengthening of the ringgit against the US dollar; higher raw material costs; and the shift in product mix to more affordable ranges, which offered lower margin.

During the quarter in review, Poh Huat’s revenue fell a marginal 1% to RM161.89mil from RM163.46mil, while its earnings per share (EPS) fell to 2.84 sen from 8.28 sen previously.

Both TA Research and Affin Hwang Capital cut their target prices for Poh Huat, following the disappointing results by the company.

For TA Research, the new target price for Poh Huat had been cut to RM1.78 from RM2.01 previously.

The brokerage said in its report yesterday following the weaker-than-expected results, its earnings forecasts for Poh Huat for the financial years (FY) ending Oct 31, 2018, to 2020, were cut by 8.7%-9.9% to factor in higher production costs. In the absence of dividend payout for the first quarter, TA Research said it also cut its FY18 dividend payout assumption from eight sen per share to six sen per share.

“Although the economic conditions in United States – the main target market for Poh Huat – remains healthy and demand for furniture resilient, a shift in market preference to the more affordable range is observed by the company. This, together with a stronger ringgit against the US dollar may lead to lower margin in the foreseeable future,” TA Research explained.

As for Affin, the new target price for Poh Huat stood at RM2.21, down from RM2.48 previously. The brokerage said it had lowered its core EPS forecasts for Poh Huat for FY18-FY20 by 8%-11% to account for higher cost of sales and assumption of a stronger ringgit-to-US dollar at 3.80-3.90 from 4.00-4.05 previously.

“Due to our earnings revision, our 12-month target price for Poh Huat is now lower at RM2.21 based on an unchanged price-earnings ratio of nine times on our FY18 core EPS,” Affin explained.

Despite lowering their target prices for Poh Huat, both TA Research and Affin maintained their “buy” calls on the counter.

Affin said it liked Poh Huat for its inexpensive valuation of 6.2 times the estimated earnings for FY18.

“We expect sustained demand for furniture in the US market, Poh Huat’s largest export market, to benefit the company as they continue to enjoy strong orders from customers from the United States for both the office and home furniture segments,” Affin explained.


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