Poh Huat Resources Holdings Bhd 
(June 30, RM2.11)
Maintain buy with a higher target price (TP) of RM3.04: Net profit of RM12.7 million for the first half of the financial year ending Oct 31, 2015 (1HFY15) came in within our expectations, which accounted for 41.8% of our full-year estimate.

Poh Huat has declared a first interim dividend of three sen per share (1HFY14: nil), beating our expectations. The dividend will go ex on July 20. Year-on-year, 1HFY15 net profit jumped 43.2% to RM12.6 million as revenue increased 11.8% to RM201.3 million, and profit before tax margin expanded by 1.8 percentage points to 7.6%. The better results were mainly due to higher shipment from the group’s Vietnam operations as demand from the United States continued to improve, and a better margin as the result of improved efficiency and economies of scale. 

Quarter-on-quarter, net profit declined 44.6% due to seasonality as revenue declined 8.5% to RM96.2 million.

Having the majority of sales denominated in foreign currencies, mainly US dollar, we expect the strengthening of the US dollar against the ringgit to be a boost to the group’s bottom line. Since the beginning of FY15 in November 2014, the forex rate has risen from about RM3.25 per US dollar to approximately RM3.78 per US dollar currently, with a financial year-to-date average of RM3.58 per US dollar, versus our assumption of RM3.50 per US dollar previously in our earnings forecast for FY15. 

We adjust our forex rate assumptions for FY15, FY16 and FY17 from RM3.50 per US dollar to RM3.65 per US dollar, RM3.75 per US dollar and RM3.80 per US dollar, respectively. We also raise our dividend payout assumptions for FY15 from nine sen per share to 10 sen per share. 

As some of the leading indicators for the group’s furniture exports to the US are showing positive signs, we expect Poh Huat’s earnings prospects to remain promising in the foreseeable future. 

Subsequent to the earnings adjustment and after rolling forward our valuation base year to calendar year 2016 (CY16), we raise Poh Huat’s TP to RM3.04, from RM2.62 previously, based on unchanged nine times CY16 earnings per share. We reiterate our “buy” call on Poh Huat, given the total potential return of 49.6% (inclusive of a 4.8% projected dividend yield). — TA Securities, June 30

This article first appeared in The Edge Financial Daily, on July 1, 2015.