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This article first appeared in The Edge Malaysia Weekly on July 31, 2017 - August 6, 2017

AHB Holdings Bhd, a manufacturer of premium office furniture, has attracted the attention of investors in the last three months and its share price has risen to the highest level since 2005. Year to date, the counter has more than doubled to 36.5 sen apiece, giving the company a market capitalisation of RM58.4 million.

However, this is a shadow of the rise the counter saw in its heyday. Twenty years ago, AHB, then known as Artwright Holdings Bhd, floated its shares on the Second Board of the then Kuala Lumpur Stock Exchange at an initial public offering price of RM3.90 apiece. At one point, the counter shot up to RM20.

Then came the Asian financial crisis. With debts amounting to millions, Artwright was hit hard as interest rates went through the roof and its vulnerable balance sheet made it difficult to respond to the downturn.

Today, after a debt restructuring and years of keeping a low profile, AHB is making a comeback. Group CEO and managing director Yong Yoke Keong says he plans to make AHB the largest premium office furniture firm in the country by 2020.

“For the financial year ending March 31, 2018 (FY2018), we should be able to achieve high double-digit growth in revenue and profit as we have secured some significant large orders,” he tells The Edge.

AHB’s net profit declined 70% to RM548,000 in FY2017, from RM1.8 million a year earlier and revenue fell 25% to RM12.5 million, compared with RM16.7 million a year earlier. Based on its closing price of 36.5 sen last Thursday, it was traded at 107 times its FY2017 earnings per share of 0.34 sen. This compares with its average price-earnings ratio of 22 times over the last three years.

It had no borrowings as at March 31, 2017, and had a cash balance of RM1.85 million.

In general, the group experienced slower demand from its main market — the Middle East — due to the weak oil price and the fact that the local and international business community were cautious about investing in office furniture.

However, things are getting better. “Overall, corporations are spending money [on office furniture]. One of our big customers has given us an order as large as RM30 million over the next two to three years,” says Yoke Keong.

AHB currently exports office furniture to the Middle East, the Americas, Asean and India. Its overseas clients include American Express, Nestlé, Gillette, GlaxoSmithKline, DHL, IBM and British Gas and its local customers include Public Bank Bhd, Royal Selangor International Sdn Bhd and Boh Plantations Sdn Bhd.

“Yes, the economy is not great, but if we position ourselves correctly, there is still a market. In fact, some clients have been giving us orders every year for the last 10 years,” he says.

Yoke Keong, 57, is the single largest shareholder of AHB with a 19% stake. He has been at the helm of the group since 1988, seeing it through its IPO in 1996. Artwright was founded by his father Yong Chee Leong, the son of a carpenter in China who immigrated to Malaya in 1938, at the age of 14, with only the shirt on his back.

Yoke Keong recalls that in the early 1960s, Chee Leong was working as a laboratory assistant at the University of Malaya (UM) and was trying to find ways to improve his income. He noticed that the drafting equipment — drawing boards and T-squares made of solid wood — being used by the students was very expensive.

“My dad did intensive research to find good quality local woods that could be used to make drafting equipment and replace the imports from the UK. He was successful in his efforts and began to make some of these products in his garage, promoting them to local dealers who were selling [drafting equipment] in Malaysia and Singapore,” he recalls.

Chee Leong asked a good friend, who was then the dean of the Engineering Faculty at UM, to suggest a brand name for his drafting equipment. The dean said, “It looks like you are in the ‘art’ business since these are drawing boards and T-squares for technical drawings. And since you are doing the ‘right thing’, try calling it Artwright.”

Since its beginnings in 1965, Artwright has supplied its products to companies and organisations in more than 25 countries. Yoke Keong eventually joined his father in the business.

In 1985, with the arrival of desktop computers, Yoke Keong introduced a range of high-quality, small computer tables. Made from honeycomb core, the products were well received worldwide, and the business grew from the niche business of supplying drafting equipment to providing office furniture.

Today, says Yoke Keong, AHB’s products are architectural-based and provide very good profit margins. “Our business model is that we design premium products and we position ourselves as a top-end manufacturer. This helps us to protect our profit margins.”

He adds that Artwright is the only name in the Asean market that can compete with international brands such as Herman Miller, Steelcase, Technion and Haworth.

Its latest product — the electronic height adjustment system — is used for desks, tables, counters and workstations.

“You can sit down or stand up for a healthier ... lifestyle. This is the new thing now ... in the requirements of office furniture,” he says.

Headquartered in Puchong, Selangor, AHB has a 1.2-acre assembly and quality control plant in Seri Kembangan. The group has adopted an asset-light business model, outsourcing its manufacturing.

“This business model is similar to international companies such as Apple and Nike. We should be able to move forward with agility and high profit growth,” says Yoke Keong.

For that reason, AHB is delaying its plan to build a state-of-the-art production facility in Port Klang by 2018.

“We want to remain asset-light until we [grow bigger], as we were told by investors to build ourselves up first. We will revisit this project in the future,” he says.

Commenting on the recent spike in AHB’s share price, Yoke Keong says investors are showing a growing interest in the company but he is not aware of any specific reason, other than the fact that the group had recently secured a large order.

Nikkei Markets reported on July 17 that AHB’s share price increase was due to hopes of strong earnings, rumours of the emergence of a substantial shareholder as well as the injection of a new business with government-related contracts. Yoke Keong denies the rumours.

 

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