This article first appeared in The Edge Malaysia Weekly on September 28, 2020 - October 4, 2020

AFTER a tough 2019 and first half of 2020, integrated solid wood-based household furniture manufacturer Wegmans Holdings Bhd has hit a home run, thanks to a surge in demand from the US for its products.

Executive director and co-founder Collin Law Kok Lim tells The Edge in an interview that the online shopping boom in the US, especially during the lockdown period due to the Covid-19 pandemic, has helped spur this demand.

“This has been the busiest time in Wegmans’ history as many people are working and spending more time at home. This has translated into higher e-commerce sales as more people are shopping online,” he says.

“Our US customers, some [of whom] are online retailers, shared with us that they saw an influx of new customers during the lockdown as more people signed up for online shopping accounts.”

Muar-based Wegmans’ core product — dining furniture — is exported in flat packs, which suit the preference of its end customers, the online shoppers. Flat packs, or knocked-down furniture, requires self-assembly by customers and are packaged in such a way that they can be easily shipped.

Law says that during the group’s IPO in 2018, its manufacturing capacity was about 80 containers per month. But now, its capacity can go up to 160 containers per month, following the commencement of mass production at its new factory a few months ago.

“Our container capacity depends on the product mix that we are shipping. For flat packs, the individual container value will be higher because you can load more products in the container. In some markets such as Japan, they tend to order more fully-assembled products, which consume more [container] space as they are shipped in larger boxes. At the moment, however, we are seeing more flat pack orders,” he says.

Apart from the lockdown, another factor that has contributed to the increase in US orders is the Sino-US trade war, which has redirected some of the US orders meant for China to Malaysian players.

Law says the group has recently secured a large order from a new customer in the US — a large multinational corporation that operates a chain of membership-only warehouse clubs, as well as online e-commerce. With this order, Wegmans’ order queue is now stretched until Chinese New Year.

“You can say it is a happy problem for us as the customer is adding to its order quantities, but we need to pace out these orders to make delivery in good time. The average lead time for delivery in the industry is about 45 to 60 days. But due to this surge in demand, it can go up to 180 days,” he says.

In terms of revenue, Wegmans may be a smaller player than other listed Muar-based furniture players such as Lii Hen Industries Bhd, Poh Huat Resources Holdings Bhd and Homeritz Corp Bhd. However, the fact that it still has room to grow its capacity gives it an advantage over its competitors, enabling it to take on larger orders.

“We have ready capacity, which is why we are able to take on more orders. We currently have three factory sites: Site 1 serves our existing customer base; Site 2 is our wood processing line; and the first phase of our Site 3 factory, which is currently running at about 70% capacity, is to serve orders from our new US customer,” says Law.

“We started [expansion] on the second phase of Site 3 in July, which we target to complete by the end of this year. Phase 2 consists of a finishing line that will support Phase 1 operations as there is currently a bottleneck at the finishing line of Phase 1. Hence, this will make the whole manufacturing process more efficient.”

He acknowledges that finding manpower, especially foreign labour, is a challenge amid the pandemic. “Until this issue is resolved, our temporary solution is to outsource certain parts of the manufacturing process to subcontractors.”

Most of the group’s products are produced on an original design manufacturing (ODM) basis, which means they are fully designed by its in-house design and development team. “Over 90% of our existing sales are on an ODM basis. But for our new US customer, its orders are mostly on an original equipment manufacturer basis,” says Law.

The group also has its own brand called Collino Designs. “Initially, we were thinking of tying up with property developers to furnish their condominiums, but this plan has been put on hold as the property sector is not doing so well right now. However, we still sell our designs under ODM, just that they do not carry the Collino brand name,” he says.

For the first half of its financial year ending Dec 31 (1HFY2020), Wegmans reported a net loss of RM854,000 against a net profit of RM4.64 million a year ago, owing to the temporary disruption of its operations as a result of the Movement Control Order (MCO) from March 18. Revenue for this period fell 15% year on year to RM35.97 million.

The temporary interruption to its production operations resulted in higher fixed costs and labour costs as optimum production capacity could not be achieved.

“With the increase in orders from the US, we expect a better financial performance in the second half of the year. As for the full-year performance, it is hard to say if things will be better than FY2019, given that we had a slow start to the year [due to the MCO],” says Law.

“But if we were to compare FY2021 with FY2019, we are definitely looking at a strong double-digit growth in our container [output]. This would directly translate into a much stronger financial performance in FY2021 as well.”

In a Sept 3 note, PublicInvest Research says Wegmans is a beneficiary of the stronger US dollar as roughly 99% of its sales are transacted in the greenback while its main raw material is sourced locally and transacted in ringgit. The research firm likes the manufacturer for its steady earnings growth, which is supported by the production capacity expansion to cater for the rising demand.

“In addition, Wegmans enjoys slightly higher profit margins than its peers due to the competitive advantage the group enjoys as an ODM player. With the additional capacity coming in, we are positive that Wegmans will be able to diversify its revenue stream via market expansion and new product offerings,” it says.

Last Wednesday, Wegmans’ shares had appreciated 11% year to date to close at 30 sen apiece, giving the company a market capitalisation of RM150 million. Law and Wegmans managing director and co-founder Keh Wee Kiet are its largest shareholders, with a 35% stake each.

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