POHUAT: Earnings Stayed Firm

Results Update

For QE31/10/2020, Pohuat's net profit rose 91% q-o-q or 49% y-o-y to RM22 million while revenue rose 63% q-o-q or 13% y-o-y to RM217 million. The Group’s turnover increased 63% q-o-q to RM217 million due to the recovery of demand and planned inventory building by US importers for the year end festive seasons, shipment to our US customers from both our Malaysian and Vietnamese operations increased substantially. In Malaysia, turnover grew by more than 40% whereas Vietnam’s turnover grew by a whopping 80%.

Correspondingly, profit before tax grew more than doubled to RM28 million as absolute gross profit grew 82.7% to RM47 million. Gross profit margin improved from 19.2% to 21.5% on the backdrop of stable raw material prices and better overhead absorption from the higher plant utilisation rate. In line with the higher turnover, selling, distribution and administrative expenses were broadly higher but were consistent as a percentage of sales with those in the preceding reporting period under review. The higher gross profit, coupled with the stable operating expenses, the Group’s profit before tax rose more than double from RM13.74 million.

Table: Pohuat's last 8 quarterly results


Graph: Pohuat's last 52 quarterly results

Financial Position

As at 31/10/2020, Pohuat's financial position is very healthy with current ratio at 2.9 times while total liabilities to total equity was at 0.3 time. Net cash in hand was equivalent to 83 sen per share.

Valuation

Pohuat (closed at RM1.78 yesterday) is now trading at a trailing gross PER of 9.3 times (based on last 4 quarters' EPS of 19.14 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 4.5%.

Technical Outlook

Pohuat has recovered from the low of RM0.68 in Mar to a recent high of RM2.06. An intermediate uptrend line, SS will provide support if the share price were to retreat in the near future.

Chart 1: Pohuat's daily chart as at Dec 23, 2020 (Source: Malaysiastock.biz)

Looking at the weekly chart, we can see a line connecting the recent peaks for the stock. This line, denoted as RR, will provide resistance for any near term rally. However, if the share price can surpass this resistance, the ensuing rally can be expected to be strong.

Chart 2: Pohuat's weekly chart as at Dec 23, 2020 (Source: Malaysiastock.biz)

Conclusion

Based on good financial performance, healthy financial position 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.