Markets
Poh Huat to ride on demand uptrend
Affin Hwang Capital Research 
Despite fierce competition, Poh Huat has been able to grow its revenue, driven by strong demand and its ability to produce high-quality products
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POH Huat Resources is an established furniture manufacturer with over 30 years’ experience in international trade. It is also a major home and office furniture manufacturer in Asean. In our view, the company’s recent expansion into the Australian market is positive as it will help to increase its customer base, provide a new source of income and reduce its dependence on the US market.

According to the Malaysia External Trade Statistics, furniture exports have been rising since 2013. Likewise, Poh Huat’s US exports (91% of sales in FY16 versus 85% in FY13) have trended similarly. We expect this trend to continue, driven by the US housing sector and better consumer sentiment. The government ban on the export of rubberwood (wood from rubber trees) should also ensure sufficient supply of raw materials for manufacturing.

Despite fierce competition from other manufacturers, Poh Huat has been able to grow its revenue, driven by strong demand and its ability to produce high-quality products. We believe growth in earnings will be underpinned by higher shipment volumes given the strong demand, launch of new models, better average selling prices of its products and rising factory efficiency.

Efforts to continuously introduce new furniture lines have enabled Poh Huat to adjust its pricing strategy to reflect current cost of production and market conditions. We like Poh Huat as we opine that growth prospects from its existing markets and expansion into new markets like Australia offer decent earnings catalysts.

We initiate coverage on Poh Huat with a buy rating and 12-month target price of RM2.39 based on a FY18E price-to-earnings ratio of nine times.



This article first appeared in Focus Malaysia Issue 255.