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Wednesday, March 23, 2016

Pohuat: Earnings dropped

Results Update

For QE31/1/2016, Pohuat's net profit dropped 11% q-o-q but rose 73% y-o-y to RM14 million while revenue increased 8% q-o-q or 44% y-o-y to RM151 million. Revenue increased q-o-q mainly due to the stronger housing sector and generally better demand for household furniture in North America.

In Vietnam, high shipment of furniture continued into November and December 2015 as the Group shipped orders which were previously delayed as a result of the fire in August 2015. This has resulted in a higher turnover of RM100.09  million in the current quarter under review. In line with the higher turnover, profit before tax of its Vietnamese subsidiary rose to RM10.49 million in the quarter under review.

Shipment of office furniture from its Malaysian operations was also higher at RM50.37 million due to the increase in shipment for project-related products to North  America.  The Malaysia  operations  however recorded a lower profit before tax due to higher payment of year-end bonus and a marginally lower average US Dollar/Ringgit exchange rate as compared the preceding quarter ended 31 October 2015.

Meanwhile, the Group results were also impacted by the weakening of US Dollar against the Ringgit during the quarter under review. This has resulted a loss in foreign currency of RM2.58 million in current quarter against a gain of RM3.80 million in the preceding quarter.

Based on the above, we can earnings from the Vietnamese operation to normalize (downward). This, plus the negative drag from the decline of USD-MYR, could easily offset the boost from the absence of higher expenses in the Malaysian operation. Thus going forward, Pohuat's earning should be lower than the last quarter.


Table 1: Pohuat's last 8 quarterly results


Chart 1: Pohuat's last 37 quarterly results

Valuation

Pohuat (closed at RM1.46 yesterday) is now trading at a PE of 6.9 times (based on last 4 quarters' EPS of 21.15 sen). At this PER, Pohuat is deemed fairly attractive.

(Note: Since my last post, Pohuat had a 1-to-2  share split and, thereafter, a bonus issue of warrant of 1-for-4 in October 2015.)

Technical Outlook

Pohuat broke its intermediate uptrend line, SS at RM1.50. This bearish breakout could lead to further decline. See Chart 2.


Chart 2: Pohuat's weekly chart as at Mar 22, 2016 (Source: ShareInvestor.com)

With the MACD dipping downward (but yet to cross below its MACD signal line) and the same goes for the ADX & ADXR, Pohuat could have peaked after its scorching rally since breaking above its long term downtrend line, RR at around RM0.15. Any pullback may find ready support at the 21-month EMA line at RM1.15-1.20. See Chart 3.


Chart 3: Pohuat's monthly chart as at Mar 22, 2016 (Source: ShareInvestor.com) 

Conclusion

Based on weaker financial performance & technical weakness, it's a good idea to take some profit on your position in Pohuat. Nevertheless, this stock is still attractively priced and you may want to revisit the stock in the next quarter or after a slight dip.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Pohuat.

8 comments:

Big Sea said...

Alex,
One positive I see with POHUAT is that they have enough capacity to cope with revenue upside. That means if there is revenue growth in future, POHUAT can cope with it without further capital outlay.

Alex Lu said...

Hi Big Sea,

How did you come to that conclusion? How would that affect your analysis?

Pohuat's fixed assets rose very slightly from RM100 mil in April 2012 to RM120 mil in Oct 2015. In the case of Latitud, you can see that the fixed assets rose from RM200 mil in Dec 2014 to RM250 mil in Dec 2015 once the assets turnover ratio touches 1.7X.

Based on recent growth experienced by Pohuat - assets turnover ratio above 2.0X - I believe that the group needs to expand in this 12 months. Of course, Latitud's operation may be a bit different. It is into the manufacturing of individual design sofas and dining set. Pohuat's operation may be more assembly-like and can cope with high assets turnover.

Please share your thoughts.

P.S. said...

Hi alex, when you said vietnam earning to be normalised downward, may i know the interpretation is from which perspective? thank you

Alex Lu said...

Hi P.S.

In the notes to the account, item B2. MATERIAL CHANGE IN PROFIT BEFORE TAX states:

In Vietnam, high shipment of furniture continued into November and December 2015 as the Group shipped orders which were previously delayed as a result of the fire in August 2015. This has resulted in a higher turnover of RM100.09 million in the current quarter under review.

The company may have come to the conclusion based on current purchase orders received or historical performance. For example, Vietnam operation revenue for QE31/1/2015 was only RM67 million vs. RM100 million for QE31/1/2016 (see item B1. PERFORMANCE REVIEW).

P.S. said...

Thanks Alex

P.S. said...
This comment has been removed by the author.
panaceaasia said...

Hi Alex,

Brilliant analysis. The outlook is bleak no matter how much those that are long want the share price to go up.

SuperMan 99 said...

Thank you for sharing