KUALA LUMPUR: HeveaBoard Bhd, which is still in talks with SHH Resources Holdings Bhd for a possible merger or acquisition, expects to see revenue from Japan to grow by 15% in the current financial year ending Dec 31, 2015 (FY15). 

The demand for particle board products is expected to increase in the run-up to the Olympics 2020, which will be held in Tokyo, said HeveaBoard’s group managing director Yoong Hau Chun. “For now, we are looking at [an additional] 10% to 15% contribution from Japan starting now until the end of the year,” he told the media after the company’s analyst briefing yesterday.

According to Yoong, the company’s export to Japan presently generates revenue of RM15 million a month.

Japan is one of the key export markets for HeveaBoard (fundamental: 2.1 valuation: 1.8). It accounted for nearly 35% of the group’s total revenue of RM422.36 million in FY14. According to HeveaBoard’s annual report 2014, some RM147.8 million revenue was derived from Japan, up 12.52 million or 9.3% from RM135.27 million in FY13. 

On the talks between HeveaBoard and SHH Resources, Yoong said the discussion is in the preliminary stage and nothing has been firmed up yet at this juncture. 

“We did meet up, but it’s very preliminary, nothing has materialised [yet]. I cannot admit, I cannot deny also, because we did see each other ... there is nothing firmed up [thus far],” he said.

Yoong was commenting on an article published in The Edge weekly in March, which quoted sources as saying that HeveaBoard was keen on acquiring its smaller counterpart SHH Resources. 

“We are just talking and will see if there is anything we can cooperate on, that’s all, nothing solid. There are many details that we need to consider before we can make a firm decision on that,” he explained. 

Meanwhile, Yoong said HeveaBoard is on track to turn into a net cash position in the near term. 

This, he said, was due to the term loan having been mostly repaid to less than US$9 million (RM38.06 million).

“We also had been consistently paying RM26 million annually for the loan and we are not looking for any loan in the near term,” he said. 

He pointed out that once the group turns into a net cash position, it will put the group in a strong position to increase dividend payout. 

To date, HeveaBoard enjoys over RM237 million in tax incentives, which will be used to set off any future taxable profits over five years.

Commenting on the weak ringgit, Yoong said the strengthening of US dollar against the ringgit has a neutral impact on the group. 

He elaborated that although more than 90% of HeveaBoard’s revenue is in US dollars, some clients have come back to renegotiate the contract value given the current ringgit depreciation. 

“Normally, we will give them up to a 10% discount depending on the negotiations,” Yoong revealed. 

HeveaBoard posted a record net profit of RM16.04 million for the second quarter ended June 30, 2015 (2QFY15). Revenue grew by 4.2% to RM111.38 million in 2QFY15, from RM106.9 million a year ago.

This article first appeared in digitaledge Daily, on September 4, 2015.