PETALING JAYA: Furniture manufacturer Homeritz
Corp Bhd’s pricing power as an original design manufacturer (ODM) should cushion the company from the near-term negative impact to earnings due to the weakening of the US dollar and the rise of the minimum wage to RM1,700 from RM1,500.
HLIB Research, in a report, noted the company should be able to pass on some of the higher cost, over time, from the weaker greenback and the minimum wage implementation to customers due to its strong pricing power from the ODM business model.
The research house has maintained a “hold” call on the stock with an unchanged target price of 62 sen a share pegged to an unchanged price-to-earnings (PE) multiple of eight times with financial year 2025 (FY25) core earnings per share of 7.8 sen.
It deemed the stock’s current PE valuation to be fair, trading close to its five-year mean of around eight times.
It noted any downside risk to Homeritz’s share price should be supported by the company’s healthy balance sheet with net cash of RM188.1mil or net cash per share of 40.6 sen (71.3% of its market capitalisation).
The Muar, Johor-based company anticipates sales volume to continue improving from active participation in furniture exhibitions.
HLIB Research noted Homeritz’s results for the fourth quarter ended Aug 31, 2024 (4Q24) was resilient despite the US dollar weakening substantially against the ringgit quarter-on-quarter.
The 4Q24 results were partly due to the company having a degree of natural hedge as some of its raw material sourced were also denominated in US dollar (around 90% of revenue is denominated in US dollar and 50% for cost).
The company’s 4Q24 profit after tax and minority interests (Patami) of RM8.2mil as well as FY24’s Patami of RM32.9mil, which was 3.5% higher than FY23, were within market consensus for the full year.
Homeritz had proposed a final single tier dividend of 1.7 sen, with an ex-date to be announced. It paid a dividend of 1.6 sen in 4Q23.
