PRG's HK-listed unit Furniweb sees 1H net profit drop 76% on lower sales

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KUALA LUMPUR (Aug 10): Hong Kong-listed Furniweb Holdings Ltd, a 75%-owned subsidiary of PRG Holdings Bhd, saw its net profit plummet 76.1% to RM612,000 in the cumulative six months ended June 30, 2018 (1HFY18) from RM2.56 million a year ago, on lower sales.

This resulted in lower earnings per share of 0.12 sen for 1HFY18 compared with 0.72 sen for 1HFY17.

In a filing with Bursa Malaysia today, PRG said the gross profit margin of Furniweb, which produces elastic yarn and furniture webbing, dropped to 23.9% from 30.1% a year ago, on higher material prices of crude oil-based raw materials such as yarn and abrupt weakness in the US dollar against the ringgit. It was also affected by a decrease in sales volume, which in turn increased the weighing of fixed overheads over total cost of sales compared with 1HFY17.

"The company is also taking a strategy not to pass on the increased costs in the short term in view of the competitions and looming uncertainty in the global trade," said Furniweb.

Furniweb's revenue for 1HFY18 also fell 23.9% to RM44.5 million from RM58.45 million a year ago, mainly due to reduced sales for certain existing products as those customers were developing new specifications for their products and reduced procurement from certain customers as their local currencies depreciated against the US dollar.

Other reasons for the drop in revenue were the stronger ringgit that had lowered the sales denominated in US dollar, as well as revenue from sales of metal components for furniture that was excluded during the period under review.

In 1HFY18, domestic sales and export sales accounted for 42.6% and 57.4% of Furniweb's revenue, respectively. "Asia-Pacific region (excluding Malaysia and Vietnam), Europe and North America continued to be the major export countries of the group during both periods," it added.

On prospects, Furniweb said it will continue to expand the application of the products to different applications, as well as explore new export markets and expand existing customer base.

"In this regard, the group has planned to expand the production capacity, enhance capability of the product modification department and improve quality control systems and information technology systems by utilising the listing proceeds from the listing," it added.

Furniweb also warned that the recent trade policies announced by the US poses risk to the global trade and increases uncertainty in the market and may result in a lower global growth rate.

"It has led to uncertainty in demand among some of our customers who prefer to take a cautious stance in terms of their purchase in the near term. With the global economy under threat with the impending tariff war, the group anticipates the prospect of manufacturing business in the near future will be challenging.

"However, the group will continue to explore and pursued its strategies to capture new business opportunities. The recent crude oil price surge has also increased the price of certain crude oil-based raw materials, such as polyester high tenacity filament yarn, polypropylene multifilament yarn and spandex, which have impacted on the gross profit margin of the group," said Furniweb.

It added that it will also closely monitor raw material prices on a regular basis and adjust the procurement plan and pricing strategy, if necessary.

Furniweb also noted that any significant and abrupt movement in the exchange rate between the ringgit and the US dollar may also result in foreign exchange gains or losses, which may affect the group's results as the group derives a significant amount of its revenue in US dollar.

Furniweb shares ended the morning session up HK$0.03 or 9.52% at HK$0.34 today, as investors had expected the weak results. On Monday (Aug 6), Furniweb had issued a profit warning after a preliminary review of its unaudited accounts for 1HFY18.

A total of 1.12 million shares were traded, with a market value of HK$173.88 million.

On the local bourse, PRG shares were unchanged at 78 sen in the morning session, with 8,000 shares traded, bringing a market capitalisation of RM240.93 million.