KODA LTD (SGX:BJZ)
Koda Ltd - Demand Lull In The Near Term
- Koda (SGX:BJZ)'s FY22 (1 Jul 2021 to 30 Jun 2022) PATMI was within expectation, excluding the losses from the Vietnam plant fire incident. FY22 revenue and PATMI were 107%/97% of our forecast. Final dividend was cut 25% y-o-y to 0.75 cents.
- The outlook is cautious. Furniture inventories in the US are piling up from overstocking triggered by supply chain worries and softer consumer demand which is shifting to services.
- Our FY23e earnings forecast for Koda is cut by 54% to US$4.6mil. We downgrade our recommendation for Koda from BUY to NEUTRAL. The target price for Koda is lowered to S$0.50 (previously S$1.10). Our target price is pegged to 5x ex-cash FY23e P/E, in tandem with historical P/E (ex-cash).
The Positive
Recovery post-lockdown in Vietnam and Malaysia.
- Koda's revenue recovered significantly from the 14% y-o-y decline in 1H22. Operations in Vietnam and Malaysia were temporarily shut for 2 to 3 months due to COVID-19-related restrictions.
The Negatives
Net loss of S$1.1mil from fire.
- 3rd January 2022, a fire incident in the Vietnam factory packaging line resulted in the loss of property, plant and equipment (US$0.6mil) and inventories (US$2.2mil) totalling US$2.86mil. Interim and partial compensation received is US$1.4mil. We estimate the net loss (after tax) to Koda's PATMI was US$1.1mil. The insurance adjusters are still in the process of determining the final claim amount.
Retail drag in China.
- Due to the lockdown in China, retail sales in Commune stores were negatively impacted. Certain shopping malls were closed and consumer sentiment was weak.
Outlook
- We expect Koda's 1H23 to be challenging. Customer inventories in the US are elevated and at record levels. With consumers shifting spending to services and discretionary spending shrunk by rising inflation, furniture demand is expected to remain weak.
- See
- With the outlook turning less certain, we expect Koda to turn more caution on new projects such as sofa manufacturing.
- In addition, Koda's net cash on the balance sheet has shrunk from US$11.8mil in FY21 to US$0.4mil in FY22 following the purchase of a property in Tagore Lane. Of the S$13.8mil in gross debt, around 80% is long-term in nature.
Downgrade Koda to NEUTRAL with a lower target price of S$0.50 (previously $1.10)
- We lowered our valuation for Koda from 7x P/E (ex-cash) to 5x P/E (ex-cash) due to the slowing earnings momentum as customers deal with the higher-than-expected inventory.
- Our FY23e earnings forecast for Koda is cut by 54% to US$4.6mil. We downgrade our recommendation for Koda from BUY to NEUTRAL. The target price for Koda is lowered to S$0.50 (previously S$1.10).
Phillip Research Team
Phillip Securities Research
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https://www.stocksbnb.com/
2022-09-04
SGX Stock
Analyst Report
0.50
DOWN
1.100
