The price of Poh Huat Resources Holdings Bhd warrant (POHUAT-WB) has been on declining trend since making its debut on Bursa Malaysia in October 2015.
Except for a brief period shortly after its listing when the warrant rose to as high as RM1.11, POHUAT-WB has largely fluctuated between 70 sen and 90 sen.
However, the warrant price fell below 60 sen early this year and its pace of decline has accelerated in recent weeks. It ended trading on April 4 at 32.5 sen after touching a historic low of 31 sen earlier that day.
The mother share of Poh Huat is also on a significant downtrend after starting the year at RM1.79. It closed at RM1.24 on April 4.
Poh Huat is an established furniture manufacturer with more than 25 years of experience in the international furniture business. It has over the years grown to be one of the key furniture players in Southeast Asia with manufacturing bases in Malaysia and Vietnam.
Poh Huat manufactures two types of furniture, namely office furniture and home furniture. Its products have gained acceptance in more than 30 countries.
The US and Canada are its main markets – making up about 69% and 22% respectively of the group’s total sales – while the remainder of the sales comes from the UK, Malaysia, Singapore and the Middle East region.
In the first quarter (Q1) of its new financial year (FY10/18) ended January, Poh Huat’s net profit dived 65% to RM6.24 mil from Q1 of its previous financial year. This is despite the revenue of the group only dropping slightly to RM161.89 mil from RM163.46 mil.
In the notes accompanying its financial results, the company explained that both its Malaysian and Vietnamese operations experienced margin compression over the 12 months with the former having recorded significantly weaker ringgit sales proceeds from exports due to the ringgit’s strengthening.
There was also a fire incident at one of its Malaysian factories. A disruption in production from the incident has resulted in a drop in the company’s operational efficiency for its panel-based home furniture line.
Poh Huat also wrote down damaged stocks amounting to RM1.08 mil during the quarter. There was also a provision for foreign exchange losses and fair valuation of receivables totalling RM3.98 mil as a result of the weakening US dollar against the ringgit.
Given the progressive decline of the greenback against the ringgit has also adversely impacted its profit margins, Poh Huat will have to adjust its product offerings to cater for changes in demographics and market trends.
With the latest plunge in its share price, POHUAT-WB is now considered attractive due to its high gearing of 3.82 times. The warrant is only trading at a premium of 6.85% while it is also theoretically undervalued.
However, investors may want to wait for the mother share to stabilise before buying the warrant as the global equity markets may face further downward pressure as the trade war between the US and China escalates.
Uncertainty on the upcoming general election also adds to the risks of entering the stock market now.
The writer is CEO of Warrants Capital Sdn Bhd