While the temporary shutdown will result in a potential loss of revenue due to production shortfall, TA Securities estimated that it would add up to around RM1mil for 10 days of disruption. “Together with the cost of disinfection and screening of workers, we believe the overall earning impact is less than 2% of FY21 earnings. PETALING JAYA: The temporary closure of furniture maker Poh Huat Resources Holdings Bhd’s operations in Malaysia is expected to have little impact on the company’s earnings. While the temporary shutdown will result in a potential loss of revenue due to production shortfall, TA Securities estimated that it would add up to around RM1mil for 10 days of disruption. “Together with the cost of disinfection and screening of workers, we believe the overall earning impact is less than 2% of FY21 earnings. “Besides, given that the Vietnam plant is still running at full operations, the group can divert some of the orders from Malaysia to the Vietnam plant should the need arise, ” it said in a research note yesterday. Poh Huat had voluntarily undergone a Covid-19 full screening for all of its employees in both factories and offices located at the Bukit Pasir Industrial Area in Muar, Johor. The screening results revealed that 543 out of the 1,400 employees tested positive. As a result, the group had decided to temporarily shut down the plant in Johor for 10 days from Jan 25 to Feb 3, based on the advice from the Health Ministry. Meanwhile, the group had immediately carried out the disinfection process for all of its facilities and employees’ dormitories. TA has maintained its earnings forecasts for the company given that the earnings impact from this development is minimal. It also reiterated its “buy” call on the stock with an unchanged target price of RM2.16, based on unchanged 10 times calendar year 2021 earnings per share. “Overall, we remain optimistic on the outlook for Poh Huat as the demand for furniture has increased strongly in recent months due to the work-from-home practice amid the Covid-19 pandemic, ” it said. Similarly, PublicInvest Research retained its “outperform” rating on Poh Huat with a target price of RM2.15. PublicInvest Research noted that the temporary closure of the company’s operating base in Malaysia is expected to cause delay in shipments to its US customers. “We are of the view that the temporary closure of the production plant is unlikely to have any material impact on Poh Huat’s earnings, as the group has a certain amount of ready inventory to meet some of the orders and if needed, increase production with extended shifts when operation resumes.“We understand that should the outbreak situation worsens, the group is able to divert its production to its Vietnam manufacturing base as a last resort, ” it said. Should the operations remain closed for two to four weeks, the research house estimated that Poh Huat’s earnings will be impacted by about 1.5%-3%. The Malaysia operations contributed about 45% of the group’s total revenue in FY20. Since the end of last year, analysts had expressed optimism in the company given robust demand for furniture from the United States and backlog orders for delivery until July this year. Strong US new home sales is expected to further support furniture demand. Poh Huat has earmarked around RM30mil for automation and capacity expansion in its Malaysia operations which could potentially increase its capacity by 30% in FY22.
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