KUALA LUMPUR: Furniture stocks are expected to see further upside potential, bolstered by lower rubber prices and significantly higher exports due to the weak ringgit. Analysts are also positive about local furniture makers' growth potential as some have made plans to expand this year.
A check on several furniture stocks by The Edge Financial Daily revealed that their share prices have surged by between 8.6% and 28.9% since June 15 this year.
Evergreen Fibreboard Bhd (fundamental: 0.85; valuation: 0.9), which manufactures medium-density fibreboard, led the risers, jumping as much as 28.9% to RM1.47 from RM1.14 since the middle of last month.
This is followed by Lii Hen Industries Bhd (fundamental: 2.8; valuation: 2.4), which saw its share price close at an all-time high of RM5.30 yesterday, up 9.28% from the previous day's close. The stock has appreciated 18.7% since June 15.
Poh Huat Resources Holdings Bhd (fundamental: 2.1; valuation: 2.4) also closed up 0.94% at RM2.14 yesterday, for a market capitalisation of RM228.39 million. The stock climbed 8.1% from RM1.98 a share on June 15.
Homeritz Corp Bhd's share price also ended the day sharply higher yesterday, settling at 4.79% higher to RM1.53, while shares in Signature International Bhd closed in positive territory at RM2.69, up 0.37% for a market capitalisation of RM322.68 million.
Analysts told The Edge Financial Daily that a main factor contributing to the share price rally is the stronger US dollar, which is providing support as it makes Malaysian furniture cheaper for overseas buyers.
Year-to-date, the greenback has gained 8.05% against the ringgit. The ringgit dropped 0.7% to close at 3.7752 per US dollar yesterday.
"The ringgit [was trading] at 3.7000 against the greenback. Those who are benefiting [from this] are furniture makers who are exporting in US dollars, and their cost is ringgit-dominated," said CIMB Research analyst Marcus Chan.
Chan also noted that rubber prices have declined more than 50% over the past three years, benefiting furniture makers who use rubberwood as their main raw material.
Apart from foreign exchange gains, another analyst who declined to be named, said investors are also closely watching the expansion plans that furniture makers have in the pipeline.
Citing Homeritz (fundamental: 1.95; valuation: 1.5) as an example, the analyst said investors are bullish about Homeritz's acquisition of the remaining 35% stake in Embrace Industries Sdn Bhd (EISB) for RM12.17 million last month.
The acquisition will allow Homeritz to consolidate all revenue and profit of EISB — a manufacturer of metal frames for dining chairs — which in turn contribute positively to the earnings of the group as a whole in future.
The analyst added that Homeritz is now trading at 12 to 13 times its 12-month trailing earnings, which is slightly expensive compared with other peers.
"With the net cash position the company has, it remains a stock investors should look at," he said.
Another analyst sees Poh Huat Resources Holdings Bhd as a beneficiary of a strong US dollar given two-thirds of the group's market is dominated by the United States.
"With the strengthening of the US dollar and the improved demand from the US, I believe Poh Huat will continue to benefit from the current situation," he said.
"The stock is relatively undervalued, trading at less than seven times its price-earnings ratio, which is deemed attractive compared to other furnitute stocks," he said.
He pointed out that Poh Huat has declared a first interim dividend of three sen per share for the financial year ending October 2015, which has attracted investors' interest.
The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Go to www.theedgemarkets.com for more details on a company's financial dashboard.
This article first appeared in The Edge Financial Daily, on July 3, 2015.