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Wednesday, June 27, 2018

Pohuat: Earning Stabilized

Results Update

For QE30/4/2018, Pohuat's net profit rose 73% q-o-q or 2% y-o-y to RM11 million while revenue dropped 23% q-o-q or 2% y-o-y to RM126 million. Revenue dropped y-o-y due to 12.4%-decline in turnover for the Vietnamese operations, due to lower exchange rate for VND to MYR, which was partially offset by a 16.3%-increase in turnover for the Malaysian operation due to strong orders for our panel-based bedroom sets for the US market.

Despite higher sales, the Malaysian operations reported a lower gross profit margin of 18.1% in the current reporting period against 26.9% in the previous corresponding reporting period due to the
progressive increase in raw material costs as well as the weakening of the USD against the Ringgit which has resulted in lower Ringgit selling prices for our products.

In line with the lower sales, the Vietnamese operations reported a lower profit before tax of RM4.00 million as Profit before tax margin weakened to 5.84% against 9.39% previously due to the shift in our product mix to the affordable ranges and progressive increases in raw material and labor costs over the last 12 months.

During the quarter, Pohuat recorded exceptional gains from fire insurance compensation of RM1.27 million (for its Malaysian operation) as well as a net income of RM3.95 million being the final payment under the Settlement of Enforcement Proceedings Agreement for the disposal of our former subsidiary, Poh Huat Furniture Industries (Qingdao) Co Ltd. If these 2 one-off exceptional items were excluded, Pohuta's profit before tax would be lowered to RM7.4 million. Thus, Pohuat's profit before tax would show a decline compared to the immediate preceding quarter.


Table 1: Pohuat's last 8 quarterly results


Graph: Pohuat's last 46 quarterly results

Valuation

Pohuat (closed at RM1.31 at the end of the morning session) is now trading at a trailing gross PER of 6.4 times (based on last 4 quarters' EPS of 20.65 sen). At this PER, the stock is fairly attractive. In addition, the stock pays dividend totaling 8 sen in last 4 quarter, which translates to an attractive Dividend Yield of 6.1%.

Technical Outlook

In January this year, Pohuat broke its 20-month EMA line at RM1.70, which effectively signaled the end of its uptrend.


Chart 1: Pohuat's monthly chart as at Jun 27, 2018_12.30 (Source: Shareinvestor.com)

After a steady decline over the past 6 months, Pohuat has recently broken above its downtrend line, RR at RM1.30. This means the share price is likely to at least form a base around the RM1.30 level before it may begin its recovery.


Chart 2: Pohuat's weekly chart as at Jun 27, 2018_12.30 (Source: Shareinvestor.com)

Conclusion

Based on good financial performance (albeit weaker than before) and fairly attractive valuation, Pohuat is a good stock for long-term investment.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

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