Recently I came across this listed company in Malaysia, Homeritz Corp Bhd, so I decided to use the IQ quadrant to analyze this company since it passes the 30sec screening.
i find that this company is quite interesting in terms of:
It basically manufactured upholstered home furniture and sell to wholesalers & retailers overseas (mainly European countries & Asia pacific). It also have its own brand “Eritz”. Their products are aimed at medium to high end consumers.
i still find it difficult to figure out what is their Econ moat, does having a diversified clientele count? but from an analyst report it said that they are one of two major home furniture export players in Malaysia.
Since 2011, revenue & profit have been increasing. Further, its NP margin were above 10% and its ROE were above 15% over the past 5 years. So if this company have no Econ moat, how they were able to sustain it?
As for growth drivers, I’ve read all its chairman statements dated from 2010 onwards and find that they actually manucture steel as well to integrate with one of its product (upholstered dining chair). Also, they have been focusing creating new products and emphasized on cost efficiency.
They also recently acquired a land for construction of factory to increase its capacities, hence benefit from better economies of scale?
The risks are the strengthening of RM against USD (which happens recently), increase in labor costs and factory overheads which will eat up its profit margin eventually.
The MD and ED together owned 60% of the company share capital. What I’m interested is the vast knowledge that the MD has which I feel that he knows what he is doing.
Management’s Capital Allocation behavior? They are very focused with their existing products and doesn’t diversify into other businesses. Instead they are actively diversifying their client base which is good because they will not rely on only 1 major customer, right?
To cut things short, this company does fulfill the financial quadrants except it’s cash conversion cycle which is above 100 days.
When I compare with its peers, Latitude Tree Holdings Bhd, everything abt Latitude beats Homeritz except for its Profit Margin, ROE & Cashflow to Net income.
In terms of valuation, it was not really attractive due to its CAGR of 5% based on revenue since yr 2009 till 2015
which I get the intrinsic value of RM0.85/share using discounted earnings model.
I also uses PEG ratio and Price-to-Sales ratio which both also states that this stock is overvalued. Its current dividend yield were only 4%.
Overall, this is my analysis. Am I missing something here? Because I’m still practicing it :)
We have not look into this business before but there are some pointer you may want to ask yourself
- Is the furniture business resilient to the economic down cycle?
- What the business had done that allow them to consistent increase their revenue and profit?
- When you say diversifying how are they actually diversifying their client base? who is their client?
On the side note, it seem that the company is in quite a good net cash position which is a good sign.
Thanks for your insights. Well, from my understanding about furniture industry is that it kinda depends on the property market. The more ppl buying houses, the demand for furniture will rise. Homeritz has two categories of products:
- Original Design Manufacturing (i.e. Eritz)
- Original Equipment Manufacturing
In year 2011, its revenue suffers because of an economic downturn as the majority of its clients are in the European countries and during that year it was the euro debt crisis. Hence, the dramatic decline in its revenue and profits.
Homeritz clients comprises of wholesalers and retailers. I think the main reason for the management to keep focusing on diversifying its clientele over 50 countries (balance between European countries & Asia pacific) is so that 1 country’s property market suffers a downturn and its demand drop but the other country may be in better market condition and demand may rise. Hence, a set-off which makes it able to sustain its sales and profits unless there is a global financial crisis happen again.
One more thing is, I read this in an analyst report that says HOMERIZ is not subjected to the fluctuation of international freight rates as their customers bear the transportation costs from custom to destination.
Well, that’s all I got from digging deeper. But I have 1 more question, can financial ratios be use to gauge whether the company has a great management team?
Please login or Register to submit your answer