KUALA LUMPUR (Aug 7): Furniture company Synergy House Bhd (KL:SYNERGY) will likely make a net loss in April-June quarter, RHB Investment Bank warned, citing provision for bad debt and currency hedging loss.

Synergy House is likely to record a bad debt provision in the second quarter (2QFY2024), RHB IB said in a results preview note. Profit margin could be lower in 2QFY2024 and 3QFY2024 amid higher promotional intensity by American online store Wayfair, the house flagged.

“We also expect administrative expenses to be higher than what we previously pencilled in, with steeper staff costs and additional office rental,” ahead of new business-to-consumer platforms and the partnership with Wayfair, RHB said.

Shares of Synergy House have declined 21% since July 17 following news of its major customer Hillsdale Furniture LLC being acquired by Mellow River without taking on its liabilities. Hillsdale owes Synergy House about US$2.9 million (RM12.97 million) for furniture sales transacted in 2024.

Despite the recent sharp fall in share prices, the stock is still up 55% year-to-date.

On its part, Synergy House said “the company is in the midst of assessing the impact of the amount owing to the group and is also exploring various means to optimise the recovery of the amount owing.”

RHB also cautioned that Synergy House may incur potential foreign exchange hedging losses as the ringgit has appreciated quarter-on-quarter against the US dollar.

Further, container freight rates have more than tripled year-to-date despite hedging part of its freight costs, on top of a delay in passing cost to end-customers in the business-to-consumer segment, the company said.

RHB, one of only two research houses covering Synergy House, cut earnings forecast for FY2024 by nearly 20% and 12% for FY2025. The house also slashed its target price to RM1.36 from RM2.01, but nevertheless kept the stock on a “buy” call.

Despite the potential net loss in 2QFY2024, RHB nevertheless expects Synergy House to make RM34 million net profit in FY2024, a 28% growth from a year earlier, on revenue of RM376 million.

“We remain upbeat on Synergy House, given its promising growth prospects as it rides on the Wayfair platform, while a new recurring income stream may emerge by onboarding other local furniture manufacturers onto Wayfair,” the research house added.