Thursday 28 Mar 2024
By
main news image

BOARD MAKERS are well-positioned for a good year on the back of improved demand from furniture makers, say analysts. The stronger US dollar is a tailwind for board manufacturers that export the bulk of their products.

The improved prospects have lifted the share prices of Evergreen Fibreboard Bhd, Mieco Chipboard Bhd and HeveaBoard Bhd in recent weeks. Between Dec 16 and Jan 28, Evergreen’s share price climbed 76%, Mieco, 13.2%, and HeveaBoard, 43%. The US dollar strengthened 3.7% against the ringgit in the period.

As it is, Mieco (fundamental: 0, valuation: 1.2) and Evergreen (fundamental: 0.75, valuation: 1.2) are already seeing a turnaround in their financial performance. Both attributed their improved latest quarterly results to increased selling prices and improved operating efficiencies.

Mieco, which sells over 70% of its products locally, reported a net profit of RM3.4 million for the nine months ended FY2014 (9M2014), from a net loss of RM14.4 million in the previous corresponding period. Revenue rose 13.5% to RM246.3 million from RM216.9 million, “mainly due to higher domestic sales volume and increased selling price for plain board”, says Mieco in its latest quarterly results note.

Meanwhile Evergreen, which exports more than 70% of its products, achieved a net profit of RM10.07 million for 3QFY2014 ended Sept 30 after seven consecutive quarters of losses. For 9M2014, its accumulated net loss more than halved to RM14.2 million from RM36 million. Revenue grew 0.5% to RM689.8 million but cost of sales fell 3.3% to RM574.7 million.

In 4Q2014, its Malaysia segment — while reporting lower revenue due to lower sales volume because its production line had undergone a major upgrade — reported a profit (compared to a loss before) mainly due to lower log costs.

RHB Research expects Evergreen, Asia’s leading medium-density fibreboard manufacturer, to turn around in the current financial year. “This is propelled by operational efficiency, better selling prices, favourable forex and lower raw material prices. Currently, the company is still trading below its book value per share of RM1.56 as at end-September 2014,” it said in its Jan 12 initiation note.

The research house has a “buy” call on the counter, with a target price of RM1.11. It is valuing the counter based on price to book value (P/BV), applying 0.7x P/BV to its BV of RM1.59.

“All board makers will do well this year as the industry has turned the corner. It’s just a matter of who makes more [profits], although it also depends on the markets they serve and the products they offer. Those who provide higher value-added products and move away from the generic E2 boards will have higher margins,” says an analyst who tracks the manufacturers.

While each board maker will have its own strong markets, those who have been selling to Japan will benefit, points out the analyst. “Note that Japan will be hosting the Olympics in 2020. They have to build ahead, and will probably start doing so this year.”

HeveaBoard (fundamental: 1.3, valuation: 2.4), which exports 90% of its products as an original equipment manufacturer, exports 15% to 20% of its particleboards and up to 60% of its ready-to-assemble (RTA) furniture to Japan. Japanese laws require four-star particleboards (or Super E0) for their furniture, says HeveaBoard executive director Yoong Li Yen.

“While there has not been an immediate surge [of orders] from Japan due to the Olympics yet, good and consistent increase in demand is expected in the next three to four years,” she tells The Edge.

She adds, however, that due to the uncertain macro environment, the group is adopting a “very conservative” stance, aiming for an 8% to 10% net profit growth for the financial year ending Dec 31, 2015.

For 9M2014, HeveaBoard’s net profit soared 70% to RM21.56 million from RM12.69 million in the previous corresponding period. Revenue rose 8% to RM307.25 million from RM284.37 million previously.

In June last year, the group stopped producing E2 boards, which have a higher level of formaldehyde emission compared with higher grades such as E1 and E0.

Seeking to further differentiate itself and increase margins, HeveaBoard plans to launch its own brand of higher-quality furniture products for the domestic market in the second quarter of this year. The group currently sells about 10% of its RTA under the HeveaPac brand to local hypermarkets.

“More than 90% of our sales are in US dollar, so the strengthening of the currency will have some short-term positive impact. Our US dollar loan would have a reverse impact. However, as we have significantly pared down the loan, the impact would not be as huge as it would have been,” Yoong adds.

The company’s finance costs almost halved to RM2.7 million for 9M2014, from RM5.1 million in 9M2013. HeveaBoard is expected to fully settle its term loans in 2017.

The wood products industry has consolidated from the overexpansion and overcapacity of 2006, which saw many players shutting down post-crisis in 2008.

“The last few quarters have been good for chipboard and fibreboard makers, underpinned by the recovery of furniture producers, which are seeing demand coming back from the US market,” says senior analyst with CIMB Research Nigel Foo.

For instance, home and office furniture maker Poh Huat Resources Bhd purchases most of its boards from Mieco, accounting for half of its costs.

In a recent interview with The Edge, Poh Huat group CEO Tay Kim Huat says, in line with the US economy picking up (exports to the US accounts for 65% of the group’s total sales), it is targeting  revenue growth of 20% in the next three years.

mieco_chipboard_24_1052
evergreen_fibreboard_chart_24_1052
heveaboard_chart_24_1052

This article first appeared in The Edge Malaysia Weekly, on February 2 - 8 , 2015.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.

      Print
      Text Size
      Share