This article first appeared in The Edge Malaysia Weekly on September 18, 2017 - September 24, 2017

THE hurricanes in the US and the Caribbean, and the typhoon in southern China, have obviously taken an enormous economic toll. There will be a huge effort to rebuild businesses and homes , followed potentially by the replacement of destroyed household goods.

Malaysian furniture firms could see new orders flowing in next year, as rebuilding efforts continue, seeing as the US is a major market for Malaysian furniture makers.

However, while most captains of the local furniture industry tell The Edge that their companies could benefit from these natural disasters, they warn investors not to overestimate the impact.

Hurricane Harvey, as well as Hurricanes Irma, Jose and Katia, hit Texas and Florida recently. Already, Wall Street investors are anticipating a share price rally for companies dealing in homebuilding materials such as Weyerhaeuser Co, Louisiana-Pacific Corp and USG Corp, road aggregates supplier Martin Marietta Materials Inc and roofing specialists Owens Corning and Beacon Roofing Supply Inc.

Equipment rental companies, such as United Rentals, H&E Equipment Services and Herc Holdings, have also seen their share prices go up as investors expect a nationwide push to rebuild Texas and Florida after the devastating storms. Furniture stocks have yet to see any surge in interest.

Year to date, the share prices of local furniture makers Poh Huat Resources Holdings Bhd, Lii Hen Industries Bhd and Jaycorp Bhd have increased by less than 10%.

Homeritz Corp Bhd remains unchanged while Latitude Tree Holdings Bhd and Federal Furniture Holdings (M) Bhd (FFHB) fell 4% and 5% respectively.

Logically, Malaysian furniture companies are likely to benefit from the reconstruction as victims would have to purchase new furniture. FFHB managing director Datuk Choy Wai Hin acknowledges that home rebuilding efforts could lead to a spike in furniture stocks, but nobody knows when the knock-on effect of new furniture purchases will kick in.

“It is a matter of timing, and I doubt that it will be immediate. First, insurance claims need to be resolved. Then, infrastructure must be rebuilt and then comes the building of new houses. The purchase of furniture comes last,” he says.

Choy points out that FFHB, as the sole approved vendor of store sets for Starbucks Corp in 15 Asia-Pacific countries, left the home furniture space many years ago, hence it will not benefit much from the recent natural disasters.

“Today, we are more of a commercial furniture maker. But from my past experience as an exporter, I would say definitely there will be an uptick in demand,” he says.

Datuk Eric Lee Kong Sim, managing director of Lee Swee Kiat Group Bhd (LSK), the country’s largest natural latex bedding manufacturer, concurs.

“To a certain extent, Malaysian furniture companies that export to the US market will benefit, because furniture needs to be replaced. But it remains to be seen whether furniture firms can produce fast enough to meet the demand,” he says.

Lee says factories that are already running at full throttle might not be able to absorb the orders as it is unlikely they will expand their production capacity to cater for these one-off orders.

Yong Yoke Keong, CEO and managing director of AHB Holdings Bhd, a premium office furniture manufacturer, highlights that the extent to which Malaysian companies would benefit from the recent natural disasters would depend on their market exposure geographically.

“Generally, if you are geographically exposed to the affected areas, then yes, there will be an uptick. It is quite natural that you would benefit from it one way or another,” he says.

TA Securities senior research analyst Ooi Beng Hooi opines that it is difficult to quantify the extent of damage and number of households affected by the hurricanes at the moment.

He expects furniture players with major exposure to the US market to benefit to a certain extent, but the impact will not be significant enough to serve as a rerating catalyst for furniture stocks.

“It could be a trading idea, but I would not advise investors to buy into furniture stocks just because of this one-off event. I would suggest they invest based on the fundamental aspects of the companies concerned,” says Ooi.

He goes on to say that Poh Huat Resources could see increased orders, especially for its panel-based bedroom sets, which are economical.

LSK’s Lee acknowledges that, sometimes, investors just need a trading idea.

“Looking back, not all furniture companies actually benefited from previous natural disasters. For instance, if we look at the Japan tsunami in 2011, not many Malaysian companies have huge exposure to the Japanese market. Even if [they] do, [they] might not be the sole supplier,” he says.

As far as LSK is concerned, Lee says the group has yet to receive significant orders arising from the natural disasters.

“We don’t really see this as a new catalyst for us,” he says.

AHB’s Yong begs to differ. “I don’t think this is just a trading idea, if a company is able to profit from it.”

It is interesting to note that FFHB’s Choy says this would be a “classic example” of whether the stock market is tracking the real economy or is driven by investors’ sentiment.

“I think investors need to really understand the ramifications, the reality, and the real world. As an industry player, of course we are hoping for additional orders from the furniture replacement market. But again, the question is, how much of the demand would come to Malaysia and what is the timing,” he says.

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