HeveaBoard’s prospects cushioned by resilient demand in Japan

TheEdge Tue, Jul 21, 2020 09:00am - 3 years View Original


“Our Japanese customers actually received a lot of urgent orders and thankfully, we were able to meet them.” — Yoong Hau Chun, HeveaBoard MD

KUALA LUMPUR (July 21): Buying furniture may not be a top priority for many consumers in a period of economic uncertainty amid a global pandemic. The slower demand aside, furniture makers are also impacted by the government-imposed lockdown.

This is the case for particle board maker HeveaBoard Bhd, whose first quarter earnings were slightly down as a result of the introduction of the movement control order (MCO) towards the end of the quarter.

HeveaBoard is largely an export-oriented group. It manufactures and distributes a wide range of particle boards and particle board-based products, as well as ready-to-assemble (RTA) furniture products.

Its managing director Yoong Hau Chun said the MCO was in fact a period of “firefighting” for the group, to ensure it is able to retain its customer base.

The silver lining, however, is that its factories were still able to function, albeit at a 50% capacity, said Yoong. This was important for the group to be able to continue serving its largest RTA export market, Japan.

“If we were not able to operate, we would have lost our customers to Thailand and Vietnam. If that were to happen, then the impact to us would have been more severe,” he said in an interview.

Japan did not impose a lockdown during this period and thus, its markets operated normally, Yoong noted. “Our Japanese customers actually received a lot of urgent orders and thankfully, we were able to meet them,” he said.

Malaysia implemented the MCO on March 18 and it was extended four times until May 12, before the government began to ease restrictions to allow the economy to reopen again.

HeveaBoard’s RTA segment contributes more than 60% to the group’s topline, with Japan as the top export market with a 78% market share as of 2019. The group also exports to Australia, Europe and the United States.

The particle board segment, meanwhile, contributes more than 30% to the group’s total revenue, with the majority of exports going to China (29%), followed by Japan (25%). The group also exports to India and South Korea, besides selling domestically.

HeveaBoard’s net profit fell 5% to RM1.92 million for the first quarter ended March 31, 2020, from RM2.03 million a year earlier, as revenue fell 14% to RM91.61 million from RM106 million.

Yoong said the group’s second quarter results are expected to be weaker, given that the MCO was still in force. However, he sees momentum picking up in the second half of the year.

“The second quarter will definitely [be weak]. However, we have seen some encouraging improvement, starting June,” he added.

To ensure resilience of business, Yoong said HeveaBoard is focused on upgrading and automating its factory lines, which will allow for consistent quality and faster production.

“We will be spending a minimal amount of RM3 million to RM5 million on automation and upgrading factories this year,” he said.

In terms of capacity, the group’s plants in Negeri Sembilan run between 70% and 90% capacity, and hence, there is still further room for growth, said Yoong.

He added that the RTA segment will continue to be a growth driver and that the group is actively looking at new ways to increase its product range.

The group’s particle board segment, on the other hand, has seen a drop in sales over the years to its largest export market China, as it was adversely impacted by the US-China trade war. Exports to China in the segment have fallen from 50% in 2017 to 29% as of 2019.

HeveaBoard is also involved in the cultivation and distribution of gourmet fungi or eryngii mushroom, a new venture established three years ago, and is the first company in Malaysia to cultivate king oyster mushrooms. The eryngii mushrooms are currently available at the Giant, Aeon and Jaya Grocer outlets.

Although not contributing significantly to the group’s topline for now, Yoong said the group plans to grow the product further in the consumer market, with hopes of reaching a meaningful contribution in the near term.

Shares of HeveaBoard fell to a recent low of 25 sen on March 18, but has since recovered to close at 42 sen yesterday, giving the group a market capitalisation of RM241.3 billion.

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