POHUAT - Pop Huat~

Poh Huat Group had more than 30 years of manufacturing excellence. POHUAT is one of the most progressive furniture producers in South East Asia[1]. Having 3 subsidiaries (Poh Huat Furniture Industries (M), SB, PHW Properties SB, Poh Huat International SB) in Malaysia, 1 subsidiary (Poh Huat Furniture Industries Vietnam Joint Stock Company) in Vietnam, 1 subsidiary (Poh Huat International (BVI) Limited) in British Virdin Islands, 1 subsidiary (Contempro Furniture (Qingdao) Co. Ltd.) in China and 1 subsidiary (Poh Huat International Furniture S.A. (Proprietary) Limited) in South Africa, POHUAT's major activities are manufacturing, trading and sale of furniture and wooden household furniture[3].

POHUAT's Home and Office Furniture [1]

To highlight the most contributing subsidiaries, Poh Huat Furniture Industries (M) Sdn Bhd, mostly manufacturing office furniture, exporting to North US and Canada together with Poh Huat Furniture Industries Vietnam Joint Stock Company, mostly manufacturing home furniture with North US as their biggest market[3]. POHUAT's products are marketed under the brand name of AT Office System and AT Home System, with acceptance in more than 60 countries in 5 continents. With their current facilities, POHUAT strive to be a "Furniture One Stop Center", to cater the ever growing demand for customers to develop a furniture collection. Being involved in local organizations such as MTIB (Malayian Timber Industry Board), MITI (Ministry of International Trade and Industry), MFA (Muar Furniture Association) and MFIC( Malaysian Furniture Industry Council), POHUAT is closely working together with the associations and had gained global recognition and international standards.

The reason why i was attracted to POHUAT is because all the furniture exported stocks, LATITUDE, HEVEA and LIIHEN released a double digit net profit in November. So next, i look the furniture companies that will be announcing their results in December. If they are going to announce good results, at least i will see advance movement prior to the result being announced. So, POHUAT met my criteria by releasing the Q Result in December and i am even more excited when they are announcing Q4 Results. POHUAT is ranked number 4 in terms of market cap and the PE looks nice. So, lets study the fundamental of POHUAT.

Comparison among furniture peers

1) Fundamental Analysis:

Revenue and Net Profit

POHUAT is a net cash company with RM0.09 cash per share (the number of shares incresaed after i factor in the share split and bonus issue of free warrants) - Updates made on 2 January 2015, Thanks to Malaysia Stock Talk for pointing out whereby most of 75% of the trade receivables is transcacted in North America, hence, receiving USD during transaction. The other 25% are transacted in Malaysia, Asia, Europe and Africa. Revenue is maintaining there while net profit is increasing every year. The yellow bar is not complete as it is lacking of Q4 result. For the whole 2015, it just require another RM468k to break 2013's net profit, which is possible in this coming quarterly result which will be announced in December 2015.

Still remember our RM started to fall in August last year because of drop in crude oil. From 3.80, the USD/RM had spiked to the highest 4.48 on 29 September 2015. Currently closing at 4.26 as of date of writing the blog (6.07pm 29 November 2015)[4]. In the weekly chart, it seems like forming a double top. In terms of ideal technical analysis, after a double top, the price will fall down. So hopefully our RM will be strengthened even though there are a lot of factors we need to consider, such as crude oil price, Malaysia political issues, US FED increase interest rate.

POHUAT's net profit margin is not as exciting as its peers. I had calculated quarterly net profit margin (Refer to table in the left). The cells highlighted in yellow is basically where the month of August falls to. As we can notice, after the yellow cells, the net profit margin for each quarter increases, except for POHUAT, which is not so significant. But if we compare the same quarters for 2014 and 2015, POHUAT definitely surfaces out the increment. And same goes to other peers. From here, we can note that the effect the foreign exchange gain from the quarterly net profit margin.

From the Annual Report 2014, Datuk Seri Zulkipli bin Mat Noor mentioned US was still their main market. As US is getting stronger, their business will be better also.  He also mentioned that shipment to North America was strong with sustained orders for home furniture for Vietnam factories and increase in orders for office furniture from Malaysian factories. Shipping of office furniture was strong to Canada. From here, we can note that the factories in Vietnam is manufacturing home furniture while the Malaysia factory is manufacturing office furniture. 

The demand of home furniture is higher in North America while the demand of office furniture is higher at Canada. Mr Chairman also did mentioned something about the US economy. US economy is now recovering, and the demand for furniture is higher. When we look at the statistics conducted by Furniture Today. The article was published on 17 October 2015. Furniture imports to the US market grew 10% in the first half, an increase that was largely fueled by double-digit increases out of Vietnam, India and China. The overseas shipments from January through June grew to $11.8 billion, up frm $10.7 billion in the first half of 2014[5]. As US Federal Reserves announce the employment rate every month, the employment rate is increasing (sorry as i cannot find the source). Let's imagine, if a family had more money, the first thing normally that they will buy is the furniture to equip the house. Furniture is a symbol of wealth and comfort in most family opinion.

And i ran into Zeff Tan's blog in i3 investor[2] (Credit to Zeff for the wonderful findings, you can read his research in http://klse.i3investor.com/blogs/zefftan/86621.jsp). Zeff showed some historical data of POHUAT's results, stressing out 2013 Q3 net profit was lower due to bad debts and 2014 Q3 was due to Vietnamese riot. A point to note is in Q4 2013, US home sales is 5.356 mil with forex of 3.207, POHUAT's net profit is RM10.583 mil; in Q4 2014, US home sales is 5.123 mil with forex of 3.36, POHUAT's net profit is RM11.049 mil; coming to Q4 2015, US home sales is 5.476 mil with forex of 4.3, how much will POHUAT's net profit be? Once again thanks to Zeff for his findings (i only share his findings, not plagiarism, i also quote the source. Thanks Zeff, if you are reading this post)

Bursa Announcement on the Fire Incident [6] [7]

POHUAT's in Vietnam, Po Huat Furniture Industries Vietnam Joint Stock Comopany (Poh Huat Vietnam) had a fire incident on 23 August 2015[6][7]. The fire resulted in damages to 2 contiguous factory blocks housing a finishing line and a finished goods warehouse measuring approximately 10,530m2. The total damages are estimated at USD2.4 million equivalent to RM10.32 mil (USD431k for damaged buildings, USD284k for machineries and USD1,654k for inventories). POHUAT's factories in Dong Nai was decided by the POHUAT management to mitigate the production and affected facilities. POHUAT plans to increase production hours from a single shift of 12 hours to two 10-hour shifts to replenish the lost shipments. The insurance proceeds, upon receipt, will be utilised to set-off the relevant reconstruction and repair costs and assets impairment charges arising from the damaged fixed assets and stocks. The action taken by the POHUAT management is right on the spot to solve the production issues and to assure what will the insurance be used for. In short, despite the fire, which will impact the financials in the near-term, but the fundamental of POHUAT is still good. 

POHUAT recently had a 1-to-2 share split and a 1-for-4 bonus issue of warrants. The share split had subdivide every 1 ordinary share of RM1 to 2 shares of 50 sen each. Despite the fire incident, the strengthening USD and the US Furniture demand is getting higher, i am quite positive that this Quarter's result will be delivering because it only required another RM468 to break the 2013's net profit.

2) Technical Analysis:

POHUAT Chart

POHUAT had been in an uptrend. Even though after the ex date on 16 October, it is still continue to break new high. The price before 16 October was adjusted, so therefore, my support and resistance are drawn after the ex date. There was a golden triangle breakout on 18 November 2015 followed by a gap up on 19 November 2015. The high volumes also indicated the stock is now under attention. The directors were buying from 1.52 to 1.70 for the whole November. The number of shares that they bought are 280k shares.

After the fire incident, there is a gap down on the share price, but after 11 days or after POHUAT clarified the fire incident on 1 September 2015 in Bursa website, the share price continues to be in bullish position. Even after the ex date, the share price was pushed up even a lot of people take profit on that day. We can notice it by the long tail on the ex date. Currently the MACD is bullish, the chart seems to be bullish even though the market sentiment is in "profit taking mode" last week. I had drawn a support at 1.61 and the next resistance is at 1.78. From what i observe, there is an advance movement as the Quarterly Result will be announced in December 2015.

Summary:

POHUAT is definitely a stock to watch in these uncertain market condition. Window dressing might be happening during December when we observe the data from previous years. So, it will be better if we can grab stocks that might be performing due to RM weakening so that we can have the cushion of foreign exchange gain. You can have a look at my previous post on window dressings by clicking here  http://gainvestor10sai.blogspot.my/2015/11/window-dressing-and-next-targets.html

- Riding the wind of exporting strengthening USD with 75% of trade receivables from North America
- Q4 result will be announced in December 2015. Only require RM468k to break 2013's whole year net profit. Currently seems like advance movement due to good result.
- Had a fire incident and incur loss around USD 2.4 million but management is quick to have mitigation plans to cater for the production losses and even justify on the plans after they obtain the insurance claim.
- Net cash company with net cash per share of 0.09 net cash per share.
- Had a golden triangle breakout followed by a gap up on the next day, currently in uptrend with resistance at 1.78 and support at 1.61. The resistance should be easily broken .
- Directors collecting 280k shares from 1.52 to 1.70 during November.
- Share price is picking up attentions in the market despite "profit taking mode" last week.
- Respect the cut loss point very much during these volatile week with anticipated window dressing activities.

POHUAT, let's Pop and Huat~

Let's Ride the Wind and Gainvest

Gainvestor 10sai

29 November 2015

10.30pm

Sources:

[1]: http://www.pohhuat.com/
[2]: Zeff Tan's blog: http://klse.i3investor.com/blogs/zefftan/86621.jsp

[3]: Annual Report 2014
[4]: http://www.x-rates.com/average/?from=USD&to=MYR&amount=1&year=2015
[5]: http://furnituretodaystore.stores.yahoo.net/ftimpexp09.html
[6]: http://www.bursamalaysia.com/market/listed-companies/company-announcements/4854081
[7]: http://klse.i3investor.com/blogs/the_edge_insider_asia_stock/82678.jsp