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.