THE stocks of Homeritz Corporation Bhd, the Muar-based integrated solid wood-based home furniture manufacturer, remain a ‘sell’ and ‘neutral’ at two local equity research houses.

Hong Leong Investment Bank (HLIB) Research has maintained its ‘sell’ call on the stock, lowering its 52-week target price by three sen to 42 sen. The stock ended trading on Friday at 50 sen.

“We prefer to err on the side of caution as we have yet to see signs of recovery in furniture or home demand,” it said in a note released today.

It added that the company has a healthy balance sheet with net cash of RM163 million or a net cash position (NCPS) of 35.2 sen (70.3% of its market capitalization), which will allow it to weather through this challenging period.

On its outlook, it said the group’s earnings remained soft as demand for furniture from the North America and EU regions, which are key markets for Homeritz, continued to be lacklustre as their respective central banks continue to hike interest rates to battle inflation, negatively impacting home sales.

“Looking ahead, we continue to be cautious in view of a potential economic slowdown in the West, which in turn could cause consumers to be increasingly prudent with their spending. The challenging outlook should continue in the near to mid-term as long as rates remain elevated as mortgage payments will remain high,” it said.

In an exchange filing on Friday, Homeritz posted a net profit of RM5.57 million for the second quarter ended Feb 28, 2023 (2Q23), down 46.2% from the same period last year, on the back of RM39.80 million in turnover.

In a separate note, PublicInvest Research has a ‘neutral’ call on the stock with a TP of 50 sen.

It expected Homeritz to deliver weaker earnings in 2HFY23, as it was still cautious on the group’s near-term outlook, given that the elevated interest rate environment has affected the property market, thus leading to a decline in furniture demand.

“Furthermore, we think that the home furniture demand that was spurred by the work-from-home (WFH) arrangement previously had tapered off with many employees returning back to office.

“Nevertheless, the favourable exchange rate should help to partially mitigate the decline in furniture demand. All told, we are projecting a 42% YoY decline in Homeritz’s FY23F core net profit given the challenging outlook,” it said. 

Homeritz is mainly engaged in the design, manufacture and sale of upholstery furniture.