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 rate	7%
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.

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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

http://klse.i3investor.com/blogs/rhinvest/82431.jsp

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

http://klse.i3investor.com/blogs/rhinvest/81543.jsp

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

http://klse.i3investor.com/blogs/rhinvest/82368.jsp

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

http://klse.i3investor.com/blogs/rhinvest/82564.jsp

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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!