POHUAT: Furniture Manufacturer Faces Headwinds as Earnings Miss Projections, Operational Outlook Challenged

A prominent furniture manufacturer experienced a significant downturn in its third quarter of financial year 2025 (3QFY25), with headline net profit plummeting 91.2% year-on-year to RM0.3 million. This performance fell considerably short of both Public Investment Bank’s (PIVB) and consensus full-year forecasts, missing by 64.3% and 51.2% respectively.

Performance Review

The Group’s turnover for 3QFY25 declined to RM93.2 million, an 11.4% drop YoY and 5.2% quarter-on-quarter. The year-on-year revenue decrease was primarily attributed to weaker orders and reduced shipments of office furniture from Malaysia, as some customers had front-loaded purchases in earlier quarters. Quarter-on-quarter revenue also softened due to slower US orders amid tariff-related uncertainties. The drastic fall in net profit was largely a result of reduced manufacturing activities in Malaysia leading to a loss of economies of scale against fixed overheads. In contrast, Vietnam’s operations performed better following earlier downsizing and overhead cuts. Excluding non-operating items, the core net profit for 3QFY25 registered an 80.4% YoY decline to RM1.3 million. Notably, the gross profit margin significantly narrowed to 12.6% in 3QFY25, down from 16.1% in 3QFY24.

Key Challenges

The report highlighted persistent inflationary pressures, rising operational costs, and global trade uncertainties, particularly from the imposition of import tariffs by the US, as major factors impacting performance. Industry demand is expected to remain weak due to softer consumer confidence, elevated interest rates, and ongoing uncertainties surrounding US trade policies. Additionally, the appreciation of the Ringgit currency further exacerbated the situation, contributing to weaker near-term earnings.

Outlook and Coverage Decision

Looking ahead, PIVB has revised its FY25-27F earnings forecasts downwards by approximately 26-31% to account for the sustained inflationary pressures, rising costs, and Ringgit appreciation. The overall market environment suggests customers are adopting a wait-and-see approach amidst the uncertainty over US trade policies, especially following talks of potential tariff probes on furniture imports by the US President.

Given the diminished investor interest, the absence of re-rating catalysts, and an internal shift in resource allocation, Public Investment Bank has ceased its coverage on the company. Previously, PIVB had an ‘Underperform’ recommendation with a PE-based target price of RM0.90. Investors are advised that PIVB’s financial forecasts for the Group are no longer applicable for investment decisions.