PhillipCapital analyst Vivian Ye has kept her “buy” call for furniture ODM manufacturer and brand owner Koda but with a lower target price of $1.10, after the company announced its 2HFY2021 ended June results on August 26.

Koda’s 2HFY2021 results beat Ye’s expectations, with full-year revenue and earnings amounting to 116% and 107% of her forecasts. “The outperformance came from higher-than-expected manufacturing sales,” she says in a August 30 research note. 

Koda’s 2HFY2021 revenue grew 65% y-o-y to US$43.1 million, while earnings surged more than 20 times to US$4.3 million, driven by higher export sales especially to North America, increased contributions from retail and distribution and improved gross margins.

Ye anticipates export sales momentum to the US to continue growing on the back of work-from-home arrangements amidst renewed virus-containment efforts. She notes that from January to June, US furniture imports increased 46.1% y-o-y to US$30.2 billion.

In addition, Vietnam’s furniture exports excluding wood increased 47.4% y-o-y to US$1.8 billion, though Ye notes that exports fell 16.8% on a m-o-m basis in July as Covid-19 restrictions disrupted production.

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Both of Koda’s manufacturing plants - one in Malaysia and one in Vietnam - currently face Covid-19-related disruptions. In Malaysia, the government has allowed manufacturing firms to operate partially if at least 60% of their employees have been fully vaccinated and fully if 100% of their employees are fully vaccinated. She notes that Koda is working towards the progressive resumption of its Malaysian operations with higher full vaccination rates.


See also: Koda gets a 'hold' from SAC Capital as furniture demand increases


In Vietnam, factories are allowed to operate at 70% capacity if all workers have received their first dose of vaccination, and at full capacity if all workers are fully vaccinated. 

“Buffer stocks have minimised the financial impact from the disruptions. However, any longer-than-expected restrictions could affect the supply chain and inventory replenishment,” Ye comments.

She also anticipates expansion plans in China for Koda’s retail brand Commune to be partly affected by a recent surge in Covid-19 cases in several provinces in China which has sparked lockdowns, mass testing and travel restrictions. “Chinese officials, however, believe that the situation is generally manageable,” she remarks.

Given the disruptions, she has lowered her target price for Koda from $1.32 to $1.10 as she rolls over her 7-time ex-cash P/E to FY2022. “This is at the higher end of its historical five-year ex-cash P/E,” she notes.

Ye has lowered her FY2022 earnings forecast by 29% to US$0.7million, following cuts to her gross margin assumptions from 32% to 29.5% to reflect the production disruptions at Koda’s plants.  

Nonetheless, she says catalysts are still expected from higher exports to US and an increase in production capacity. 


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Meanwhile, SAC Capital analysts Lim Shu Rong and Lam Wang Kwan have reiterated their "buy" call for Koda with an unchanged target price of $1.

Koda's FY2021 results beat Lim and Lam's expectations, with the analysts noting that retail operations were bolstered by strong sales in Singapore fuelled by work-from-home refurbishment needs.

Nontheless, similar to Ye, Lim and Lam believe Covid-related disruptions in Vietnam and Malaysia could hurt Koda's production output, while property curbs imposed by the China government and strict lockdown measures in China due to the spread of Delta cases could impact sales of its Commune stores.

In addition, with Singapore now allowing up to 50% of employees to return to their workplace, the analysts believe this could potentially lower demand for home furniture.

They have tweaked their FY2022 and FY2023 topline estimates downward by 16%, taking into account the possible impact of limited production in 1H2022. "Likewise, net profit estimate is adjusted downward by 40% and 42% respectively for both years," the analysts add.

Shares in Koda closed 0.5 cents or 0.62% higher at 81 cents on August 30.

Photo: Samuel Isaac Chua/The Edge Singapore