Furniture Sector

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Malaysia: Furniture makers doing well due to strong US$ despite labour issues

BY TOH KAR INN

PETALING JAYA: Furniture makers have been performing well as their revenue and net profit continue to rise due to the stronger US dollar, despite labour issues.

The challenging environment stemmed from a lack of manpower as new measures were implemented on foreign labour.

Generally, furniture makers were able to weather through as the ringgit weakened against the US dollar.

The strong US dollar augured well with most furniture makers as export market sales were largely denominated in US dollars.

Take Homeritz Corp Bhd for example, where its sales volume declined in the financial year ended Aug 31, 2016, due to reduced manpower.

“While the shortage of foreign workers affected the group’s performance in the fourth quarter, this cost increase was cushioned by the stronger US dollar.

“The reduction of manpower stemmed from the government’s decision to temporarily freeze the intake of foreign workers for all sectors in February last year,” said Homeritz managing director Chua Fen Fatt in the group’s 2016 annual report.

Homeritz registered 7.6% higher revenue and 9.05% higher net profit of RM157.57mil and RM28.03mil for FY2016, respectively.

According to Hong Leong Investment Bank, 99% of Homeritz’s revenue is derived in US dollars while only 40% of total production cost is denominated in US dollars.

Besides that, the cost of leather, which makes up an estimated 45% of total production costs has fallen by some 20%.

“Homeritz is gradually recovering from the shortage of skilled foreign labour, which has been deterring the company from expanding its capacity despite brisk demand, given that it obtained approval to bring in 60 more foreign workers since October 2016.

“The fifth production line that will expand Homeritz’s capacity by a further 15%, is on track to commence operations by the second quarter of 2017, of which part of the new factory will be rented out to its sub-contractors,” said Hong Leong Investment Bank.

Homeritz manufactures and exports a range of upholstered home furniture, comprising leather and fabric-based sofas, dining chairs and bed frames.

Its geographical reach consists of regions like North, Central, and South America, Europe, Middle East, South Africa, Japan as well as Australasia.

As for Jaycorp Bhd, its furniture division contributed 81.9% or RM237.14mil to the group’s total FY2016 revenue of RM289.46mil.

Jaycorp Bhd executive chairman Tan Sri Abdul Majid Khan, in the group’s 2016 annual report, stated that the improvement was attributed to the increase in order volume from all markets due to competitive prices as the ringgit depreciated.

In addition, Jaycorp’s improving operational efficiency along with stringent cost control led to the improved earnings from the furniture division.

“Looking forward, demand for furniture will likely remain steady as global consumer sentiment improves.

“Any further devaluation in the Malaysian Ringgit will assist us in improving our price competitiveness,” said Abdul Majid.

Jaycorp, which primarily manufactures rubberwood furniture, reported net profit of RM20.98mil for the full financial year.

Meanwhile, SYF Resources Bhd, which manufactures rubberwood furniture as well as particle board and medium-density fibreboard, found that FY2016 was a relatively quiest year for the rubberwood segment.

This was because local demand for solid rubberwood materials and components was under pressure from cheaper substitutes like particle boards, medium density fibreboard and tropical timber-based materials.

Hence, SYF Resources sought export markets, particularly in China and India for the group’s processed solid rubberwood materials segment.

SYF Resources is present in 87 countries worldwide.

For the full financial year ended July 31, 2016, the rubberwood furniture segment contributed RM218.95mil to the group’s total revenue of RM453.22mil.

The revenue for FY2016 was 43.3% higher than the previous year’s, while net profit increased by 55.45% to RM38.22mil.

SYF Resources executive chairman and CEO Datuk Seri Ng Ah Chai said that the group will actively pursue to broaden the market reach of the traditional rubberwood segment, with some inroads being made into export markets for processed solid rubberwood timber and laminated boards.

“The board division’s expansion is progressing and will show continued growth with the medium density fibreboard plant coming on stream by mid-financial year.

“With this second plant in operations, the board division will have increased capacity and will contribute more substantially to SYF Resources’ results.

“Meanwhile, the third plant located in Rompin has commenced implementation and is targeted to be fully operational by December 2017,” said Ng in the group’s 2016 annual report.

Source: The Star

http://www.thestar.com.my/business/busi ... ur-issues/

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Windfall for local furniture makers

by Daniel Khoo

Higher demand: Companies that could see an increase in demand include those which have a strong customer base in the west particularly the United States.

Manufacturers with exports to the United States likely to see a spike in demand

LOCAL furniture makers will gain after the dust settles in the aftermath of the hurricanes that hit the United States and the Caribbean region.

Furniture makers that are trading at cheaper levels could get more attention from the market but companies that have a high degree of exposure to the United States may rack up more gains from the anticipated rise in orders as the year-end approaches and festivities add to higher demand.

“The disasters in the United States can have a positive impact to companies here although it is hard to say when the impact will kick in as there is a lag. But I think the impact will come in early next year,” Hong Leong Investment Bank Research’s (HLIB Research) analyst Rachael Hong Hui Chee tells StarBizWeek.

She recently initiated coverage on one such potential beneficiary of the reconstruction activities in the United States: Lii Hen Industries Bhd with a “buy” rating and a target price of RM5.04.

Hong says that the recent events there may help boost Lii Hen’s furniture exports as the company ships 77% of its exports to the United States. Malaysia’s wooden furniture exports surged by 25% a few months after Hurricane Katrina in 2005.

“At that time Lii Hen was a small company and while the recent hurricanes did not damage as many homes as Katrina, we still a see a positive impact.

“This company exports are mainly to the west coast of the United States and they (vendors) have many branches across the country. According to its management there will definitely be a positive impact on sales,” Hong says.

She says that the company has seen an increase in orders since the middle of the year.

Other than the hurricanes that could help boost its sales, her report notes that export sales, mostly bedroom sets and panel products, have grown by 59% from RM373mil in 2014 to RM592mil last year.

In US dollar terms, exports sales grew by 49% from US$32.2mil in 2014 to US$47.9mil in 2016.

“Moving forward, we are positive that Lii Hen will continue to demonstrate decent earnings growth that’s underpinned by improving utilisation rate, increasing product range and a bulletproof balance sheet,” she says.

Hong notes that another catalyst to growth could be the company’s decision to expand its product range by diversifying into the manufacture and design of upholstery sofa sets.

“The strengthening of the ringgit notwithstanding, the increase in demand will offset the impact of the foreign exchange,” she says.

Another furniture maker, Poh Huat Resources Holdings Bhd, will also likely see an increase in sales volumes.

TA Research’s analyst Ooi Beng Hooi, who covers Poh Huat, expects a rise in sales for the company although it would be difficult to quantify at this juncture.

Ooi tagged a “buy” call on Poh Huat with a target price of RM2.51. “Poh Huat is a listed furniture manufacturer with one of the highest export sales to the United States. More than 90% of its sales are to the United States.

“Some 25% of office furniture are sold to Canada but the Canadian company will usually redirect them to the United States,” Ooi says.

Ooi notes that Poh Huat had recently introduced a new product: panel based bedroom set that’s being manufactured by its Muar plant that will help drive growth in the immediate term.

“Also one of its plants in Vietnam has seen capacity expand by 20% following a renovation after the fire incident there. This is another growth driver for the company,” he says.

On the possible earnings risks from the strengthening ringgit, Ooi reiterates that he still expects for Poh Huat to achieve a record year in 2017 (FY17 ending Oct 31, 2017).

“Without the impact of the foreign exchange, they will still grow unless the ringgit strengthens very significantly,” he says.

In his June report, he says that he has pencilled in a ringgit to US dollar exchange rate assumption of RM4.25 to the dollar in its FY17 earnings forecasts.

While the furniture industry is mostly fragmented in Malaysia, the positive impact will be seen by furniture manufacturers that have most of their sales derived from the United States.

Investors will also have to bear in mind that the impact of natural disasters will mostly be a one-off event that will add to their earnings.

Lii Hen and Poh Huat, which are trading at 8.76 times and 7.04 times earnings respectively, are certainly worth a second look should the cited growth catalysts from new products and capacity expansion add to bottom line numbers over the longer term.

Source: The Star

http://www.thestar.com.my/business/busi ... YITbEkH.99

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Malaysia: Furniture

Within the furniture space, Lii Hen Industries and Latitude Tree Holdings are two stocks which caught the research house’s attention considering 70%-90% of their sales are directed to the US.

Furthermore, both have solid balance sheets with a net cash position, making up 10%-20% of their corresponding market capitalisation. Valuation wise, they are trading at less than 10 times price-to-earnings (PE) while offering commendable dividend yields of more than 3%.

Source: The Star

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