Homeritz to benefit from weaker ringgit

KUCHING: Furniture designer and manufacturer Homeritz Corporation Bhd (Homeritz) is set to gain from the recent weakening of the Malaysian ringgit.

The current weak state of Malaysia’s currency will bode well for Homeritz as 99 per cent of their revenue is denominated in US dollars, while only 40 per cent of total production cost is denominated in US dollar.

“Our sensitivity analysis indicates that for every 10 sen depreciation of the ringgit against the US dollar, Homeritz’s bottom lines for the financial year 2017-2018 (FY17-18) will be boosted by six to seven per cent,” reported the research arm of HongLeong Investment Bank Bhd (HLIB research).

In addition to this favourable foreign exchange ( forex) gain, Homeritz’s bottom-line will also be set to benefit from the falling price of leather, which accounts for approximately 45 per cent of Homeritz’s total production cost.

Homeritz’s management has guided that the price of leather has fallen by 20 per cent since the fourth quarter of 2016 (4Q16), and its current low cost is expected to sustain in the near future.

Moreover, there are signs of Homeritz recovering from their shortage of skilled foreign labour which had previously deterred the company from expanding its capacity despite brisk demand from consumers, as the company has recently approved to bring in an additional 60 foreign workers.

“Despite the unexpected blip in manpower which resulted in lower volume production, we expect the company to recover its output with the recent approval to bring in foreign labour,” the research arm said.

With manpower no longer being a barrier for expansion, Homeritz’s capacity is set to increase by another 15 per cent with the commencement of its fifth production line, which is on track to begin operations by 2Q17.

Furthermore, its management also shared its recent acquisition of four acres of landbank in Muar, indicating that Homeritz will continue being on expansion mode which in turn may heighten pricing competition between furniture players.

In light of Homeritz’s favourable forex gain coupled with low production costs, HLIB Research revised its FY17-19 core net profit forecasts by 6 to 7 per cent to reflect these tailwinds.

HLIB research maintained its ‘ buy’ recommendation for Homeritz with a revised higher target price of RM1.11 from RM1.06 per share.