My first furniture stock in Bursa Malaysia – POH HUAT
In
the first place, furniture stocks will never come into my investment
portfolio radar, maybe due to the perception of low margin, highly
competitive and slow grow prospect. But after I went through the AR of
this company report. I started to change my perception. Conventional
thinking, most of the local retail furniture shops are not doing well,
so in my opinion the furniture manufacturers also shouldn't be good
either. In certain extend, I might be right but how about the furniture
exporters that earning USD. For the past few years, there was a theme of
furniture stocks, but now already cool off. Now, to most of the
investors, furniture stock considered as sunset business, one
word“hopeless”. But if you look at this company 5 years financial
highlights, it doesn't look so dull, in fact, the company still
growing.
CAGR for the past 5 years
1)Turnover - 6.4% (not that impressive but pass 3 years around 12.4%)
2)PBT - 28% (very impressive)
3)PAT - 56% (very impressive)
4)EPS - 26% (very impressive)
Company background
*“The
company has its roots in Muar in the southern state of Johor, which is
the heartland of Malaysia’s furniture industry. Today, its local
manufacturing facilities have expanded to 5 factories, located on 24
acres of land, with about 800 workers. This is the company’s base for
producing, primarily, panel-based wood furniture for office and
home-office systems, made from laminated particleboards and metal parts.
The manufacturing process is relatively simple – cutting, boring,
edging and packing – and involves a high level of automation. Products
are either manufactured based on in-house designs and marketed under its
own brand names (‘AT Office Systems’ and ‘AT Home System’) or
customised to order. A typical office suite comprises of tables,
worktops, side extensions, counters, pedestals, cabinets and
workstations. The newest addition to its product range is the
panel-based bedroom sets, mainly for export to the US market. In 2003,
Poh Huat expanded its manufacturing base to Vietnam, where there is a
greater pool of skilled workers to produce higher quality (value) spray
orientated wood furniture, mostly bedroom sets. Its manufacturing bases
in Vietnam are situated in 2 locations, namely the districts of Binh
Duong and Dong Nai, near Ho Chi Minh City.”
What I like?
-the
company is focus on the US and Canada market (90%). As North America
economy on the steady recovery path, so the demand of new houses also on
the rise, this should benefit furniture exporters like Poh Huat. That's
mean the company still has plenty room to grow.
-recently
acquired a warehouse in Australia, according to the management,
Australia market quite similar to North America in term of personal
preference on furniture. We might see the contribution from this part of
world in a few years time
-a net cash company, with RM32.9m (maybe already expexted because most of the furniture stock in net cash position)
-* from latest quater report
”Shipment of furniture from our Malaysian factories increased substantially as a result of the coming on-stream of
new products, including panel based bedroom models, introduced in the
previous quarters. Contribution from its panel based bedroom models for
the US market increased to 20% from 5% previously. Shipment of furniture
from our Vietnamese operations were also higher in line with
improvement in the US economy and its efforts to ship higher value
orders to the US.”
* from research report
“To
expand its market share, the company has a two-pronged approach. On one
hand, it is moving up the value chain by producing home furniture sets
targeted at the medium and upper-medium segments of the market, which
carry better margins and are less competitive. On the other hand, it is
also moving down, to the lower-mid market segments with its panel-based
bedroom sets to encompass the home and SoHo segments. This move has
since produced tangible results, as evidenced by the increase in sales
and earnings. The company indicated that panel-based bedroom furniture
now accounts for some 20% of sales from the local plant. Utilisation
improvement has translated into better economies of scale.”
-attractive valuation with low PE, steady cash flow, strong balance sheet, ROE-20% and DY-4%
Some risks but not limited to
• depleting woods resources and increasing in wood costs (as latest governance announcement that ban rubberwood export from 1st July is a good news to the company)
•
tightening in regulation and law in countries where the Group operates
and sell to (Trump protectionist trade might pose some threat to the
company)
• subject to world economic changes since the Group operate in and sell across the globe;
• expose to foreign workers shortage problem (due to illegal foreign workers issue)
• exposure to foreign exchange fluctuation; (as export oriented, stronger USD is good for the company)
• production availability and technical changes in manufacturing processes
To me, the fair value of this company is around RM2.50
*derived from AR and some research report
FOR SHARING PURPOSE ONLY, NOT A BUY OR SELL CALL ON THE COMPANY
