Poh Huat expands beyond existing bases into Australia

Poh Huat Resources Holdings Bhd (Sept 20, RM1.55)

Reiterate buy recommendation with a higher target price of RM2.05: Poh Huat Resources Holdings Bhd is acquiring a detached warehouse cum office showroom in South Dandenong (approximately 30km south-east from Melbourne’s central business district), Australia, from JSNJ Investment Pty Ltd for some A$4.25 million (RM13.27 million).

The rationale for the acquisition is to expand into a new target market from its existing operational bases in Malaysia, Vietnam and South Africa. The exercise will be funded by internally generated funds, backed by Poh Huat’s net cash position of RM25.8 million (as at end-April) and is expected to be completed by December 2016.

The property comprises a 2,807sq m single-storey warehouse with a 315sq m office with retail-showroom facilities. Sitting on a 5,265sq m parcel of commercial land, the property is secured by parameter fencing and automated gate entrances, and has 47 car park bays within its compound.

We understand that for a start, the group intends to market its panel-based office furniture and bedroom sets under its own brand. While it may take some time to establish its brand and gain wide market acceptance, we are positive on the move as the new target market is expected to provide growth potential to the group and may in the long term reduce its over-reliance on the North American market.

Even though the population of Australia (estimated at 24 million as of 2015) is significantly smaller than its traditional main market in the US (estimated population of 320 million as of 2015), the Australian market is relatively untapped, compared with the much more matured furniture business in the US. Furthermore, product design adopted for the Western market in the US market is commonly accepted by Australians.

We leave our earnings forecasts unchanged for now. We do not expect the expansion to make immediate earnings contributions to the group in financial year 2017 (FY17) and FY18 as we think it may require time to establish the brand and gain market share. — TA Securities, Sept 20

This article first appeared in The Edge Financial Daily, on Sept 21, 2016. Subscribe to The Edge Financial Daily here.

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