PhillipCapital is initiating a “buy” recommendation on furniture manufacturer Koda with a target price of $1.32, following a surge in furniture demand as people start to spend more time at home amid measures to curb the Covid-19 pandemic.
In its latest 1HFY2021 ended December 2020 results, Koda reported an 18.4% y-o-y increase in earnings to US$4.8 million, while revenue gained 15.5% y-o-y to US$39.6 million. Patmi for the period increased 15.7% y-o-y, exceeding FY2020 levels.
Sales in 2HFY2020, which was the January-June 2020 period, were largely hit by restrictions around the world to combat Covid-19. 1HFY2021 revenue rose as export sales to North America recovered.
See also: Koda to temporarily suspend operations in Vietnam
In a July 23 report, analyst Vivian Ye says, “We expect FY2021 Patmi to almost double, supported by growth in export sales to North America.”
To be sure, year to May 2021, US furniture imports rose 44% y-o-y to US$24.9 billion. Imports were even higher than pre-Covid levels by 18%. After the US-China trade war, Vietnam has overtaken China as the world’s largest furniture exporter. It exported US$7.4 billion worth of furniture, up 31% y-o-y, to the US in 2020, a tad above China’s US$7.3 billion.
In anticipation of a bigger order book, Koda acquired a piece of land and a factory building in Vietnam in March 2021 to increase capacity for its mixed-material furniture production, storage and warehousing. Built-in area for the factory is approximately 8,473 sqm, while the land has an area of approximately 13,768 sqm.
With that, Koda has also expanded into sofa. According to Ye, within the furniture market, sofa manufacturing is the most straightforward. Contributions from manufacturing sofas have not been factored in.
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Koda may also see additional source of growth from its Commune brand which was started in 2011. Through aggressive expansion, Commune can now be found in 85 stores in four countries, 75 in China alone.
Revenue from its retail and distribution segment grew at a CAGR of 13.2% from FY2016 to FY2020. Year to June 2021, furniture retail sales in China grew 18.8% to RMB78.1 billion, driven by recovery in retail spending as life in China returns to normalcy.
As at 12.55pm, shares in Koda are trading 13.12% higher at 90 cents. The stock is trading at a FY2021 price-to-earnings ratio of 5.7 times, with a dividend yield of 3.1%.
Photo: Samuel Isaac Chua/The Edge Singapore