RHB Investment has maintained a Buy call on Synergy House Furniture Sdn Bhd with a target price of RM1.55, offering a 22% upside potential. Despite trimming the FY24 forecast by 3.5%, RHB has kept its FY25 earnings expectations unchanged, driven by expectations of margin recovery.
The house added that Synergy House's long-term growth prospects remain positive, fuelled by its expansion into higher price-point segments on business-to-consumer (B2C) e-commerce platforms. Manpower costs are expected to stabilise from FY25 onwards, in line with the company's target headcount. This, coupled with stronger year-end festive sales and operational efficiencies in FY25, positions Synergy House as an attractive investment opportunity.
The company reported strong revenue growth, with a record high RM114 million in revenue for 3Q24. This was driven by a 56.2% increase in its business-to-business (B2B) segment and a 78.5% rise in its B2C segment, bringing 9M24 revenue to RM275 million, up 53.3% year-on-year. However, core profit for the quarter came in slightly below expectations at RM7.4 million, with a 23.8% increase in 9M24 core profit, totalling RM21.1 million. The lower core profit margin year-on-year was attributed to B2C stock clearance activities, lower-margin B2B orders, rising freight rates (up 200% year-on-year), and a 59% rise in manpower costs.
Despite these temporary cost pressures, RHB has raised Synergy House's FY24 revenue target by 3%, but lowered its core earnings forecast due to higher operating costs, especially related to manpower and freight expenses. For FY25, RHB expects margin recovery, driven by softer freight rates and improved cost efficiencies. Management has guided that Synergy House is in its growth stage, with a focus on long-term expansion despite short-term profitability pressures.
To sustain its revenue growth, RHB noted that the company plans to continue expanding into new platforms and countries, diversify its product offerings, and target higher price-point segments in the B2C market in collaboration with international e-commerce platforms. In terms of cost management, Synergy House will focus on controlling raw material costs and negotiating fixed freight rates for 2025 to stabilise logistics expenses. With the target headcount of 250 nearing, manpower costs are expected to stabilise as well.
