KUALA LUMPUR (April 29): Analysts have raised their earnings forecasts and target prices (TPs) for Homeritz Corp Bhd, after the group's latest set of financial results beat their expectations on higher-than-expected sales volume. 

But they kept the stock on 'hold', which is a recommendation to neither buy nor sell the stock, amid concerns about inflation potentially affecting near-term demand for the company's furniture.

Homeritz shares rose as much as 2.68% to a high of 57.5 sen on Monday, before paring their gains to 57 sen by market close — still up one sen or 1.79% — giving the company a market capitalisation of RM264.05 million. Earlier this month, the counter hit a three-year high of 58 sen.

Homeritz’s net profit jumped 65.9% to RM9.24 million for the second quarter ended Feb 29, 2024 (2QFY2024) — its highest quarterly earnings since 4QFY2022 — bringing the group's net profit for the first half of FY2024 to RM18.29 million.

The earnings exceeded estimates provided by the two research houses covering the stock. Hong Leong Investment Bank (HLIB) had projected an increase of 55%, and PublicInvest Research a 63% rise.

HLIB anticipates further improvement in Homeritz's earnings for the upcoming quarters, attributed to an uptick in furniture orders. The company's management, it noted, had indicated active participation in more furniture fairs this year, resulting in the acquisition of new customers as well as the replenishment of inventories by previous customers.

Consequently, HLIB revised its earnings forecasts upwards by 13.4% for FY2024, 17% for FY2025, and 17.9% for FY2026, based on higher sales assumptions.

"However, given the fact that the Fed (US Federal Reserve) had indicated concern over its inflation outlook and potentially pushing back any rate cuts to 2HCY24 (the second half of calendar year 2024), we maintain a cautious outlook on Homeritz as well over the sustainability of its earnings growth. Nevertheless, even if orders do take a hit in the near term, the stronger US dollar should be able to cushion the decline in sales volume," HLIB said in a note on Monday.

“[We] maintain ‘hold’ with a higher TP of 58 sen (from 50 sen) pegged to eight times FY2024 core EPS (earnings per share) of 7.2 sen," it added.

PublicInvest, meanwhile, adjusted its earnings forecasts upwards by an average of 16% for FY2024 to FY2026 to factor in higher sales volume, and raised its TP to 58 sen from 51 sen previously.

"We maintain a cautious stance on the group's near-term trajectory, given the prevailing high interest rates, amid persistent inflationary pressures. Nevertheless, we hold a positive outlook on the group's ongoing initiatives, particularly its active participation in furniture exhibitions aimed at acquiring new customers.

"These efforts are expected to continue bolstering the group's performance moving forward. Additionally, the group's concerted efforts to optimise cost structures through the expansion of its supplier network should help to cushion input cost pressures, further bolstering its competitive positioning," PublicInvest added in a separate note.

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