Dominant aims for another record performance in FY19

TheEdge Mon, Jun 25, 2018 09:02am - 5 years View Original


JOHOR BARU: After achieving record net profit last year, Johor-based flat laminated wood products and moulded wood components manufacturer Dominant Enterprise Bhd is targeting to grow its bottom line by at least 10% for the financial year ending March 31, 2019 (FY19).

While the company is aiming at setting another record, its deputy managing director cum chief executive officer Danny Owee Geok Choon conceded that the outlook remains challenging given the slowdown in both the property and infrastructure sectors, coupled with higher labour costs.

For FY18, Dominant sees its net profit increase 21.43% to RM27.86 million, compared with RM22.94 million last year, while revenue would rise 14.68% to RM656.74 million from RM572.65 million.

Nonetheless, Owee pointed out that demand for flat laminated wood panels and wood moulding is still growing.

“Many interior designers like to use MDF (medium-density fibreboards) instead of solid wood. MDF is getting more and more popular as labour cost is getting expensive, the log price is getting more expensive and solid wood is getting harder to get. So with all these, we are seeing our products getting more popular,” Owee told The Edge Financial Daily in a recent interview.

“We need to come out with new designs and patterns [in order] to demand for higher margins,” said Owee, noting that FY18’s profit margin of 4.24% is considered one of the best Dominant has achieved. He attributed the performance to higher demand and favourable foreign exchange.

To maintain the profit margin, Owee said Dominant is working on enabling its wood products — MDF, plywood, particleboards and other wood panel products — as substitutes for solid wood.

“If we are able to substitute that product (solid wood), then we are able to enjoy a better profit margin in the beginning stage,” said Owee.

“We are trying very hard to convince the buyers to substitute to our products,” he added.

Hence, he stressed the need to understand Dominant’s buyers very well. “We need to persuade them why they should change ... especially when labour is getting more expensive, and while solid wood is [also] getting very expensive,” said Owee.

He highlighted that solid wood is expensive as it is seasonal, which results in volatile pricing and supply, while Dominant’s wood products are much easier to manage as supply is not seasonal.

Additionally, to cater to growing demand for flat laminated wood products, Dominant has allocated about RM25 million for a factory in Dengkil, Selangor, and another RM5 million for a warehouse in Ipoh. Both are expected to be completed by FY21.

The Dengkil factory is expected to contribute an additional 5% to its top line starting FY22.

Dominant had also separately allocated another RM2 million as capital expenditure for its wrapped moulding and flat lamination machinery upgrades as well as new production lines, which will enable the company to increase its capacity for FY19.

At present, Dominant’s production capacity for flat laminated wood products is 10,000 cubic metres per month, while wood moulding is at around 2,000 cubic metres per month. Dominant’s plant is currently operating at above 60% utilisation and still has room to cater for increases in demand.

While Owee said the business is “not very labour-intensive”, the company is still trying very hard to become more automated, noting that it is a long-term investment.

“This is so that … with the same number of staff now, we are able to expand our business. As we expect the business to keep on growing ... then we will surely be facing labour issues [in the future],” said Owee.

 

Expanding overseas

While 80% of Dominant’s turnover is still derived from local sales, Owee noted that the company has been trying to increase its export sales. “In the last few years, the local market has been great. Although we do not have much export [sales], our buyers (furniture players) are export-oriented,” Owee said.

Incorporated in 1991, Dominant now exports to more than 20 countries in Asia, Europe and Australasia. Besides Malaysia, it has subsidiaries in Singapore, Vietnam, Australia and Thailand.

Dominant is now targeting to expand its footprint to the Philippines, Myanmar, Indonesia and South Africa, said Owee. However, he revealed that Dominant has no concrete expansion plans yet.

He noted that the company is “quite conservative” in the sense that Dominant will only set up a subsidiary in a particular country after having established a certain market share there.

When asked if Dominant is looking at any M&A (merger and acquisition) deals or forming joint ventures, Owee declined to comment, noting that the company will keep its options open.

Dominant closed at RM1.30 last Friday, pegging it at a trailing 12-month price-earnings ratio of 7.78 times of the manufacturer of wood products, and valued the group at RM214.81 million.

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