1)
Date: 06/05/2015
| Source | : | HLG | ||||||||
| Stock | : | HOMERIZ | Price Target | : | 1.54 | | | Price Call | : | BUY | |
| Last Price | : | 1.21 | | | Upside/Downside | : |  +0.33 (27.27%) | ||||
News
- Homeritz proposed a bonus issue of up to 100m new shares on the basis of one bonus share for every 2 existing shares held.
- The group also proposed bonus issue of up to 50m free warrants on the basis of one warrant for every 4 existing shares held. The bonus shares will not be entitled for the free warrants.
- The proposals announced are expected to be completed by 3QFY15.
Highlights
- We are neutral to slightly positive on the proposed announcement as it would result in a larger share base capital, enhancing the liquidity and marketability of the shares.
- The proposed bonus issue of warrants would have a 5- year maturity period of which may be exercised at any time, commending on and including the date of issuance.
- As for the impact towards share base, the minimum case scenario would enlarge Homeritz’s share base by 50% to 300m shares.
- Assuming all dilutive securities are exercised (maximum case scenario), the group’s share base would increase to 350m shares.
Forecasts
- Maintained as the proposed corporate exercises does not result any significant changes to our forecasts.
Rating
BUY- Posi tives: 1) the group could benefit from strong USD; (2) its revenue and PATAMI are expected to grow at CAGR of 8% and 14% respectively from FY14 to FYE16; (3) it has net cash per share of 23 sen; and (4) Still attractive FY15E DY of 4.3%, based on 40% payout ratio.
- USD weakness; high raw material prices; high labour costs; unexpected economic downturn; and production or operational risks.
Valuation
- We maintain our TP at RM1.54 (based on 10x P/E which is premium to the furniture industry average P/E of 8x as we forecast the Group’s CAGR growth at 14%).
- Post-bonus issue, our TP would be adjusted from RM1.54 to RM1.02 (vs. ex-price at RM0.77).
2)Homeritz Corporation - 2QFY15 Results |
Results
- Homeritz’s 1HFY15 revenue of RM71.2m (+11% yoy) translated into PATAMI of RM10.8m and accounted for 44% of our full year estimation (versus average of 42% of full year earnings).
Deviations
- We deem the earnings in line with our expectations as 2Q has always been the weakest quarter for the group due to seasonality. Historically, 2Q represents on average 19% of full year earnings (versus 26% of our full year estimation for the current quarter).
Dividends
- None.
Highlights
- 1HFY08/15 review… The group achieved revenue of RM71.2m, an increase of 11% yoy, mainly due to growth in volume of sales and stronger USD. 2Q is seasonally weaker quarter for the group due to festivals (Christmas, New Year, Chinese New Year etc.). Its PATAMI improved 4% yoy, from RM10.4m in 1HFY14 to RM10.8m in 1HFY15, despite the absence of its pioneer status tax incentive.
- 2QFY15 review… Despite the seasonally weaker quarter, revenue increased 13% qoq. PBT was up 52% to RM9.4m in 2QFY15, from RM6.2m in 1QFY15 . The improved performance in 2QFY15 compared to 1QFY15 was attributed by the stronger revenue generated, strengthening USD and lower raw material cost arising from lower price of leather.
- USD plays… Despite recent strengthening in ringgit against USD, the group could still benefit from strong USD as our base case forecast for revenue and net profit for FYE15 assumes an average exchange rate of RM3.50/USD vs average of RM3.24/USD achieved in FY14. Sensitivity analysis shows that every RM0.10/USD appreciation will boost FY15 net profit by about 6%.
- Strong earnings and balance sheet… Homeritz’s revenue and PATAMI are expected to grow at CAGR of 8% and 14% respectively from FY14 to FYE16. The Group has net cash per share of 23 sen and attractive dividend yield of 4.8% with 40% dividend policy.
Risks
- USD weakness; high raw material prices; high labour costs; unexpected economic downturn; and production or operational risks.
Forecasts
- Unchanged.
Rating
BUY- We maintain our BUY call on Homeritz due to beneficiary of stronger USD, increasing consumer demand in global market, margin expansion and solid earnings base.
Valuation
- We use 10x P/E which is premium to the furniture industry average P/E of 8x as we forecast the Group’s CAGR growth at 14%. Hence, we derive to a fair value at RM1.54.
3)Homeritz Corporation - Home sweet home pillars |
Highlights
- A global player… Homeritz is one of the leading upholstered home furniture manufacturers in Malaysia. It designs, manufactures and exports three major products (upholstered sofas, dining chairs and bed frames) to more than 50 countries across all continents.
- Beneficiary of stronger USD… Sensitivity analysis shows that every MYR0.10/USD appreciation will boost FY15 net profit by about 6%.
- Broadening Homeritz’s revenue base… According to CSIL (Centre for Industrial Studies) research report, global consumption of upholstered furniture is expected to grow in 2015. With increasing consumer demand in global market, we believe that the Group will target more revenue contribution from the global market by marketing their products in international furniture fairs and furniture-buyers’ magazines. Despite recent slowdown in global economy, the Group still recorded consistent rise in revenue and earnings since FYE12. Thus, the Group is able to compete internationally despite intense competition from China.
- Stronger and sustainable margin… Homeritz’s margin would be boosted by improvement in utilization rate, stable leather prices, strong USD as well as reduction in labor cost dependency.
- Strong earnings and balance sheet… Homeritz’s revenue and PATAMI are expected to grow at CAGR of 8% and 14% respectively from FY14 to FY16. The Group has net cash per share of 23 sen and attractive dividend yield of 4.3% with 40% dividend policy.
Catalysts
- Stronger USD would have a positive impact on Homeritz’s profit margin.
- Favourable global consumption of upholstered furniture would broaden Homeritz’s earnings base.
- Margin expansion is expected to boost the Group’s earnings growth.
- Net cash position and attractive dividend yield.
Risks
- USD weakness.
- High raw material prices.
- High labour costs.
- Unexpected economic downturn.
- Production or operational risks.
Valuation
- We use 10x P/E which is premium to the furniture industry average P/E of 8x as we forecast the Group’s CAGR growth at 14%. Hence, we derive to a fair value at RM1.54. Given increasing consumer demand in global market, stronger USD, margin expansion and solid earnings base, we initiate coverage on HOMERITZ with a BUY call with a 30% upside potential.
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