SAC Capital is initiating a “hold” recommendation on furniture ODM manufacturer and brand owner Koda with a target price of $1.002.
Established in 1972, Koda is an ODM manufacturer for well-known retail brands. ODM manufacturing accounts for 82% of its revenue. The manufactured products are sold to North America (67.4%), Europe (10.4%) and Asia (22.2%). Koda also owns the brand Commune for mid- to high-end market. The products are sold in 85 stores across Asia Pacific, with 88% of these in China.
See also: Furniture boom in US gets Koda a 'buy'
With increasing work-from-home measures worldwide and reduced mobility, the demand for home renovations and improvements have risen significantly. Fiscal stimulus handouts have raised household savings rate and propensity to spend on goods. In the US, sales at furniture stores surged 49.5% in the first five months of 2021. Year-to-April 2021, Singapore’s furniture and household equipment sales rose 22.7% y-o-y.
With that, lead analyst Lim Shu Rong sees several earnings growth catalysts in the next few years, namely higher home sales, fuelled by low interest rates and ample liquidity; increased production capacity with a new factory in Vietnam to about 30% in 2022 to cater to higher demand; new sofa products that are easy to produce. The company plans to ramp up sofa production as demand increases; and greater penetration of Commune. It plans to grow the number of Commune stores to 100 by 2022, through rolling out more franchise stores in China. A larger store network will allow it to enjoy operating leverage.
However, some near-term concerns include tightened mobility restrictions in Malaysia and Vietnam to cope with a resurgence of Covid-19 cases; and increased adoption of e-commerce sales for furniture.
“Unlike in the past, furniture brands now face global competition. Those with weak online presence will face greater pressure,” adds Lim.
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As at 12.55pm, shares in Koda are trading at 84 cents or 9.1 FY2021 earnings with a dividend yield of 1.7%.
Photo: Samuel Isaac Chua / The Edge Singapore