Classic Scenic to maintain sales growth momentum

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KUALA LUMPUR: Malaysia’s biggest wooden picture frame manufacturer and exporter, Classic Scenic Bhd, expects to maintain its sales growth momentum at a pace of 15% to 20% next year as more orders are expected to flow in following the recovery of the US and global economies.

“We have been growing very fast for the past 10 years, but even so the growth has been gradual and sustainable. Each year, we aim to grow at about 15% to 20% or RM8 million in sales,” the company’s managing director Samuel Lim told The Edge Financial Daily in an interview, noting that even while the company is excited about the upcoming prospects for the year, its sales growth target remains the same.

Classic Scenic derives 98% of its revenue from export of its wooden picture frames and holds approximately 34%-38% of the market share for Malaysian exports in this niche industry.

Its customers are largely from the US, which account for 77% of its product sales, while Canada takes 3%. The rest of its customers are from Australia (9%), Europe (5%) and Asia (5%). The remaining 1% is local customers, who contribute to about 2% of its revenue.

About 90% of its products are sold in US dollars, hence a global economic recovery and the recent uptrend in US consumer spending bodes well for Classic Scenic, especially with the continued strengthening of the US dollar versus the ringgit.

“The business is relatively recession-proof. We have been through a few recessions and we have managed to weather the storm each time and emerged stronger,” Lim said.

At the height of the global financial crisis in 2008 (FY08), the company stayed profitable even as its net profit dipped 30.87% on-year to RM7.82 million, with revenue slipping 17.3% on-year to RM47.41 million. FY09 was another challenging year and its revenue continued to fall by 10.46% on-year to RM42.452 million, though net profit improved by a marginal 4.81% on-year to RM8.194 million, due to gains in foreign exchange.

In FY10, the company’s net profit rebounded 44.67% on-year to pre-crisis levels of RM11.854 million, with revenue leaping 33.74% on-year to RM56.777 million. It then went on to register RM9.3 million profits in FY11 and RM13.3 million in FY12.

The company’s biggest clients are American. They include Michaels Stores Inc, the largest retailer of arts and crafts materials in the US, Hobby Lobby Inc, which has 600 stores all over the US and ready-made frame maker, Larson-Juhl, which has stores in 15 countries around the world.

“North America is our most lucrative market. We don’t mind being over-concentrated or exposed in that mature market,” said Lim, adding that the company’s success in securing these prolific clients is due to the quality and prompt delivery of its products.

That, he said, is why Classic Scenic could afford to price its products at a 15% premium over its competitors’. Consequently, the company enjoys a pre-tax profit of around 25% of its turnover annually, double what some of its competitors are seeing.

Additionally, Classic Scenic, with six manufacturing factories in Rawang, Selangor, is located close to its source of raw materials. To cushion against any possible irregularity in wood supply, it also keeps an inventory of eight to nine months of timber.

Its revenue and earnings were hurt by lower export sales to the North American market last year (FY13), with revenue declining to RM52.4 million and net profit slumping 31.2% to RM9.1 million, but its net margin still held up fairly well, at 17.4%.

It is set to recover ground lost this year. Its second quarter ended June 30, 2014 (2QFY14) net profit was at RM3.2 million, with revenue at RM17.4 million, an on-year improvement of 30.76% and 24.22%, respectively. Its 1HFY14 net profit is up 11.98% on-year at RM5.51 million, with revenue up 8.19% on-year at RM29.92 million. As at June 30, the company remained debt free, with a strong net cash of RM15.8 million.

Lim said the company has a dividend policy of declaring at least 50% of its profits as dividends, but it went beyond that and declared almost 100% in the last five years.

Classic Scenic’s performance is starting to attract investors’ attention.

The company’s stock was listed as The Edge Research’s ‘Stock With Momentum’ on Oct 27. Its share price hit a 52-week high of RM1.43 the next day. On Friday, it closed at RM1.26, giving it a market capitalisation of RM151.83 million.

 

This article first appeared in The Edge Financial Daily, on November 3, 2014.