POH HUAT RESOURCES HOLDINGS BHD
By Affin Hwang Capital Buy (maintained) Target price: RM1.71
THE ongoing trade dispute between the US and China is making Malaysian furniture manufacturers more competitive compared to those in China.
Poh Huat stands to benefit from this as it has good relationships with US buyers, which make up an estimated 90% of sales.
Poh Huat’s current forward orders runup to March to April 2019.
The group has been updating and adjusting its product mix, mainly to meet the change in consumer preferences towards the middle and affordable products from high-end products previously.
On top of that, at the Vietnam operations, where competition is intense due to the rising number of furniture makers, Poh Huat has been trying to introduce more unique and differentiated furniture products that other furniture makers are not able to copy, and which is helping to keep orders resilient.
Currently, the group is in talks with an Australian company that sells furniture products online. The contribution from this venture is likely to be small, nevertheless, if Poh Huat manages to purchase the Australian company, this could be the group’s first foray in tapping the Australian furniture market.
“We lift our financial year 2019 (FY19) and FY20 core earnings for Poh Huat by 4.5% and 3.4%, mainly due to stronger US demand, but partly offset by rising production costs from higher raw material and labour costs.
“We reaffirm our buy call on Poh Huat and lift our 12-month target price to RM1.71 from RM1.64, based on a price-earnings ratio of 7.2 times applied to our 2019 core earnings per share,” it said.