Monday, 5 October 2015

Homeritz - Home ERITZ

*On June 2015, HOMERIZ had acquired the remaining 35% of EISB and EISB had become HOMERIZ wholly-owned subsidiary

Principal activities
Ø  Design, manufacture and sale of upholstery furniture products, comprising leather and fabric-based sofas, dining chairs and bed frames
Ø  Has a diverse customer base spanning across more than 40 countries, including Europe, Australia, New Zealand, North and South America, etc.
Ø  HOMERIZ own brand of lifestyle furniture series under “Eritz”

Financial Highlights
REVENUE RM'000
Year/ Quarter
2011
2012
2013
2014
2015
1
24,459
26,863
25,028
35,687
33,365
2
19,477
24,485
23,512
28,641
37,848
3
20,107
23,121
28,391
29,611
37,094
4
25,783
28,777
35,974
33,237


89,826
103,246
112,905
127,176
108,307

NET PROFIT RM'000
Year/ Quarter
2011
2012
2013
2014
2015
1
3,439
3,174
2,827
5,792
4,261
2
1,702
2,860
2,214
4,611
6,562
3
1,756
2,977
3,127
4,652
6,087
4
3,914
5,689
6,950
5,192


10,811
14,700
15,118
20,247
16,910












From FY11 to FY14, HOMERIZ revenue had a compound annual growth rate (“CAGR”) of 12.29% while its net profit had a CAGR of 23.26%! Based on the FY15 first three quarters, HOMERIZ revenue and net profit are very likely to achieve a new high.

The excellent financial results are probably because of higher sales volume and strengthening of USD.
Year
2011
2012
2013
2014
2015*
Net borrowings, RM’000
4,565
3,021
2,672
2,306
2,008
Free cash flow, RM
11,705
24,471
34,710
51,585
50,415
Net cash, RM
7,140
21,450
32,038
49,280
48,407
*as at 31 May 2015

HOMERIZ net cash on hand had increased 7 times from 2011 to 2014! It is definitely a cash rich company with almost MYR50m on hand. It totally reflects HOMERIZ financial strength. Cash is king during hard time.

Company Highlight
June 2015
  • Acquisition of the remaining 35% of equity interest in Embrace Industries Sdn. Bhd. for MYR12.17m

July 2015
  • Bonus issue 1:2 with free warrants on the basis of 1:4
  • Acquisition of an agriculture land at Johor for MYR7.68m


Weakening Of MYR
Based on the geographical information, only 0.8% of HOMERIZ revenue is from Malaysia while 99.2% are exported out to other countries!

Weakening of MYR against USD, SGD and Euro will benefit HOMERIZ! So far, MYR had depreciated about 22% against USD. That’s mean if other factors remain constant, theoretically HOMERIZ will have extra MYR3m+! That’s a lot!

Expansion Plan
On July 2015, HOMERIZ had acquired a piece of land at Johor for MYR7.68m whereby its existing manufacturing plants are located at the same place too.  To expand its business. HOMERITZ had proposed to establish a factory on the land.

Definitely, this will be a good news for HOMERIZ even though it was just the first stage. With almost MYR50m cash on hand, HOMERIZ can easily make internal funding and borrowing for this new factory.

Since the land had been acquired, there should be no obstacle for HOMERIZ to set up the new factory. By the time the factory establishes, HOMERIZ production capacity will also increase.

Acquisition of Remaining Interest in EISB
On June 2015, Homeritz had acquired the remaining 35% of the equity interest in Embrace Industries Sdn. Bhd. 

That’s mean upon completion, EISB will become wholly-owned companies of HOMERIZ. EISB total net profit will fully contribute to EISB and no longer with 65% only.
On FY14, EISB net profit was MYR11.6m. 
Let’s assume EISB net profit for FY15 is MYR13m. An additional 35% profit will contribute additional MYR4.5m to HOMERIZ financial result! It is equivalent to additional MYR1m+ net profit a quarter!

The acquisiton had completed on September. HOMERIZ upcoming quarter result is expected to achieve higher!
Dilution of Earnings
On July 2015, HOMERIZ had issued 50m warrants,HOMERIZ-WA 2015/2020, to the market.

If the warrant is in-the-money, it is possible that every single warrants will be exercise. If this situation happens, HOMERIZ will need to issue another 50m ordinary shares to the market. By that time, HOMERIZ outstanding shares will be 350m!

In the words, originally a grand prize is shared by 30 person, but now it needs to be share by 35 person! The portion that a person get definitely will be smaller compared to previously.

Price Estimation
HOMERIZ cash flow on year 2013 was MYR18.6m while on year 2014 was MYR29.6m, equivalent to increase of 28%. To recall again, HOMERIZ net profit CAGR for the past three years was 23.26%. For a pessimistic scenario, operating cash flow of MYR30m will be used in year 1 and CAGR of only 5% will be used! Since the Beta for HOMERIZ is 1.26, interest rate of 7% will be used.

Discount Cash Flow (“DCF”) model
Interest rate7%








Year
1
2
3
4
5
6
7
8
9
10
Est. OCF
30,000
31,500
33,075
34,729
36,465
38,288
40,203
42,213
44,324
558,478

0.935
0.873
0.816
0.763
0.713
0.666
0.623
0.582
0.544
0.508

28,037
27,513
26,999
26,494
25,999
25,513
25,036
24,568
24,109
283,902
*since we can’t take forever cash flow into account, so assumption of HOMERIZ will only sustain for another 12 years after year 10 will be taken.

Total, MYR’000
518,172
(divided) Number of shares, ‘000
300,000
Value per share, MYR
1.35

PE estimation
On next financial year, EISB revenue will 100% contribute to HOMERIZ financial result.

USD will continue to strengthen since FED is likely to hike interest rate soon.

All the factors are positive to HOMERIZ, so its future earnings are estimated as below:
Est. net profit, MYR’000

Q1
6,500


Q2
7,000


Q3
7,500


Q4
8,000



29,000






Est. EPS
0.10


Est. PE
10
12
15
Est. Price
0.97
1.16
1.45

Technical Chart
To make it simplify, only candlesticks and RSI indicator will used. HOMERIZ had a strong resistance line at MYR1.01 and a strong support line at MYR0.90.

Currently, HOMERIZ is moving side way and retests the resistance line. It is an uncertainty whether it will break through or continue moving side way.

However, if HOMERIZ is able to break through the resistance line, the buy in signal will be form. HOMERIZ will move up to another price region.


I will be writing some stock analysis report to earn some pocket money. 

I will be writing 5 stock analysis reports and 1 comparison of same industry company report a month for a fee of MYR120/month. It will be a simple, easy to read and understandable report. It had included fundamental and also technical analysis.

For full sample report of HOMERITZ, you may download and have a look, as below:
https://www.dropbox.com/s/8b5nlfg9l5i4fm0/Homeritz%2001%2010%202015.pdf?dl=0

You may also refer some of my articles as below:
1. Export-Oriented Company Not Necessarily Benefit From Weakening Of MYR  --> Tongher

2. How to Spot Unfavourable Factors of a Company? --> AYS

3. Consistently Profit Making Company Not Necessarily Is Good --> London Biscuit

4. The Art Of Investing – How To Survive During Market Downturn

In addition, you may request to carry out a research on a specific company that you wish to know, for a fee of MYR25/report. For those who subscribe monthly, there will be no extra charges.

For those who are interested, you may contact me at richeho_92@hotmail.com or 016-9392726. Or you may leave your email below, so that I can contact you.

Thanks!

4 comments:

  1. price shoot up after your recommendation... keep it up~~ i might be contacting you for more discussion but i am too busy recently~~ just want to tell you JIA YOU!

    ReplyDelete
    Replies
    1. hi hissyu2, feel free to find me then :P thanks!

      Delete
  2. Well done in your analysis. I would have done the same analysis but I use the discounted earnings model instead, pricing the company at a conservative IV of RM 1.24

    However, I have no knowledge in reading technical charts. I'd make a BUY call if the price drops down to RM 1.00

    What other companies are you looking at? Maybe we can exchange notes.

    ReplyDelete
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