COMPANY UPDATE

Thursday, September 12, 2019

FBMKLCI: 1,602.30
Sector: Consumer

THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY*

Poh Huat Resources Holdings B e r h a d TP: RM1.88 (+29.7%)

Last Traded: RM1.45
More Orders from the US Market Buy
Chan Mun Chun Tel: +603-2167 9731 mcchan@ta.com.my www.taonline.com.my

We are positive on the outlook for POHUAT, backed by its healthy top- Share Information
Bloomberg Code PHR MK
line growth, boosted by its offering of new affordable range of
Bursa POHUAT
household furniture and additional orders from US market amid the US- Stock Code 7088
China trade war. The Vietnam operation is expected to remain Listing Main Market
Share Cap (mn) 235.1
challenging in the short-term due to shortage of manpower and rising Market Cap (RMmn) 366.7
wages. Meanwhile, we expect the group to distribute 40% of FY19 profit 52-wk Hi/Lo (RM) 1.64/1.30
12-mth Avg Daily Vol ('000 shrs) 184.4
after tax as dividend, which shall translate into a dividend yield of 5.5%.
Estimated Free Float (%) 17.3
Reiterate Buy call on POHUAT with an unchanged target price of Beta 0.6
RM1.88. Major Shareholders (%)
Tay Kim Huat - 28.2
Lim Pei Tiam - 26.9
Healthy Top-line Growth
For 1HFY19, the group managed to record a healthy YoY revenue growth of
Forecast Revision
19.7% to RM344.1mn. The increase of shipment of furniture was mainly driven FY19 FY20
by: i) new product range that focuses on affordable range of household Forecast Revision (%) - -
Net profit (RMmn) 49.8 52.3
furniture, and ii) additional orders from US after the imposition of hefty tariff
Consensus 51.6 51.8
by the US against furniture originating from China. Based on Malaysian TA's / Consensus (%) 96.4 100.9
furniture export data, the overall furniture exports increased by 9.8% YoY to Previous Rating Buy (Maintained)

RM4.1bn while the furniture exports to the US surged 20.8% YoY to RM1.6bn Financial Indicators
in 5M2019. FY19 FY20
Net Debt / Equity (%) Net Cash Net Cash
CFPS (sen) 11.8 7.0
Exhibit 1: Furniture Export of Malaysia Price / CFPS (x) 12.3 20.6
ROA (%) 10.7 10.0
NTA/Share (RM) 1.5 1.4
Price/NTA (x) 1.0 1.0

Share Performance (%)

Price Change POHUAT FBM KLCI
1 mth (1.4) (0.8)
3 mth (7.6) (3.0)
6 mth (8.8) (3.7)
12 mth 3.6 (10.9)

(12-Mth) Share Price relative to the FBMKLCI

Source: Department of Statistics Malaysia, TA Securities

According to the Malaysian Furniture Council, the furniture exports from

Malaysia to US is expected to grow at least 20% annually during the next 3
Source: Bloomberg
years, backed by higher sales of completed products amid the US-China trade
war. Given that more than 90% of Pohuat’s revenue is generated from North
America, we believe the group will continue to register healthy top-line
growth, underpinned by: i) the shift in preference to more affordable range of
household furniture in US market, and ii) the trade diversion from China.
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 12-Sep-19

Margin Squeeze in Vietnam Operation

Ever since US started the trade war with China, the management notices that a
large number of Chinese manufacturers have shifted their manufacturing bases
to Vietnam. As a result, the manufacturers in Vietnam are facing shortage of
manpower and rising wages across various sectors. Currently, POHUAT’s
Vietnam operation is suffering from margin erosion due to the shift in product
mix to affordable ranges, and increased raw materials and labour costs. As at
2QFY19, the PBT margins for Vietnam contracted by 3.3%-pts YoY and 5.7%-
pts QoQ. In short-run, we foresee the Vietnam operation to remain
challenging.

Attractive Dividend Yield

Exhibit 3: Historical Dividend and Dividend Payout Ratio

Source: Company, TA Securities

Despite the group has yet to fix a dividend policy, we expect the group to
distribute at least 40% of its annual profit after tax for FY19. The group has
been in a net cash position since FY14 with a net cash of RM76.0mn as of
2QFY19. Assuming a dividend payout ratio of 40% for both FY19 and FY20,
and 45% for FY21 translates into 8.0sen/share, 8.0sen/share and 9.0sen/share,
or dividend yields of 5.5%, 5.5% and 6.2% for FY19, FY20, and FY21
respectively.

Impact
Maintain our FY19 to FY21 earnings forecasts.

Valuation
No change to our target price of RM1.88, based on unchanged 10x CY20 EPS.
Reiterate Buy call on the stock.

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 12-Sep-19
Earnings Summary
Profit & Loss (RMmn) Balance Sheet (RMmn)
YE Oct 31 2017 2018 2019F 2020F 2021F YE Oct 31 2017 2018 2019F 2020F 2021F
Revenue 614.3 621.9 632.0 655.2 680.6 Fixed assets 137.2 162.4 190.8 206.6 221.2
EBITDA 77.5 67.6 75.6 80.8 85.3 Others 35.5 36.9 35.8 35.8 35.8
Dep. & amortisation (8.8) (8.8) (11.4) (13.4) (14.5) NCA 172.7 199.3 226.6 242.5 257.0
Net finance cost (1.5) (1.3) (1.0) (1.1) (1.2) Cash 92.9 89.9 114.5 134.2 159.1
Core PBT 69.8 57.5 63.2 66.3 69.7 Others 139.3 141.3 155.8 166.9 177.1
Taxation (11.4) (10.3) (12.6) (13.3) (13.9) CA 232.2 231.2 270.3 301.1 336.2
MI (0.2) 0.1 0.8 0.8 0.8
Net profit 56.0 47.1 49.8 52.3 55.0 Total assets 404.8 430.4 496.9 543.6 593.2
Core profit 58.5 38.7 49.8 52.3 55.0
ST borrowings 22.3 18.6 21.3 22.5 23.5
Cash Flow (RMmn) Other liabilities 91.5 88.5 111.5 115.3 121.4
YE Oct 31 2017 2018 2019F 2020F 2021F CL 113.9 107.2 132.8 137.8 144.9
PBT 67.2 57.5 63.2 66.3 69.7 Shareholders' funds 284.9 317.0 357.0 397.9 439.7
Non cash expenses 5.1 5.4 12.4 14.5 15.6 MI (0.1) 0.0 0.8 1.6 2.4
Non Operating expenses (11.4) (9.5) (8.0) (14.4) (15.1) LT borrowings 0.2 0.0 0.0 0.0 0.0
Changes in WC (2.2) (1.5) 8.4 (7.3) (4.2) Other LT liabilities 6.0 6.2 6.2 6.2 6.2
Operational cash flow 58.8 52.0 75.9 59.1 66.1
Capex (22.9) (41.2) (40.0) (30.0) (30.0) Total capital 404.8 430.4 496.9 543.6 593.2
Others (4.5) 0.5 0.2 0.8 1.0
Investment cash flow (27.4) (40.7) (39.8) (29.2) (29.0) Ratio
Debt raised/(repaid) (1.1) (0.4) 2.7 1.2 1.0 YE Oct 31 2017 2018 2019F 2020F 2021F
Dividend (12.8) (17.5) (19.7) (22.4) (25.2) EBITDA Margins (%) 12.6 10.9 12.0 12.3 12.5
Others (4.0) 2.3 10.0 11.0 12.0 Core EPS (sen) 27.3 17.6 20.2 18.7 19.6
Financial cash flow (17.9) (15.6) (7.0) (10.2) (12.2) EPS Growth (%) 26.1 (35.5) 14.7 (7.6) 5.2
Forex effect 3.3 1.3 0.0 0.0 0.0 PER (x) 5.3 8.2 7.2 7.8 7.4
Net cash flow 16.9 (3.1) 29.1 19.7 24.9 GDPS (sen) 8.0 6.0 8.0 8.0 9.0
Beginning cash 71.6 88.5 85.4 114.5 134.2 Div Yield (%) 5.5 4.1 5.5 5.5 6.2
Ending cash 88.5 85.4 114.5 134.2 159.1
Net cash (RMmn) 70.4 71.2 93.2 111.7 135.6
Net gearing (%) Net Cash Net Cash Net Cash Net Cash Net Cash
ROE (%) 22.2 12.8 14.8 13.8 13.1
ROA (%) 15.0 9.3 10.7 10.0 9.7
NTA (RM) 1.3 1.4 1.5 1.4 1.6
P/NTA(x) 1.1 1.0 1.0 1.0 0.9

Stock Recommendation Guideline

BUY : Total return within the next 12 months exceeds required rate of return by 5%-point.
HOLD : Total return within the next 12 months exceeds required rate of return by between 0-5%-point.
SELL : Total return is lower than the required rate of return.
Not Rated: The company is not under coverage. The report is for information only.
Total Return is defined as expected share price appreciation plus gross dividend over the next 12 months. Gross dividend is excluded from total return
if dividend discount model valuation is used to avoid double counting.
Required Rate of Return of 7% is defined as the yield for one-year Malaysian government treasury plus assumed equity risk premium.

Disclaimer
The information in this report has been obtained from sources believed to be reliable. Its accuracy and/ or completeness is not guaranteed and opinions are subject to change without
notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this
document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein.

As of Thursday, September 12, 2019, the analyst, Chan Mun Chun, who prepared this report, has interest in the following securities covered in this report:
(a) nil

Kaladher Govindan – Head of Research

TA SECURITIES HOLDINGS BERHAD (14948-M)

A Participating Organisation of Bursa Malaysia Securities Berhad
Menara TA One 22 Jalan P. Ramlee 50250 Kuala Lumpur Malaysia Tel: 603 – 2072 1277 Fax: 603 – 2032 5048
www.ta.com.my

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