Furniture industry outlook sturdy in second half on pent-up demand

TheStar Wed, Nov 04, 2020 10:00am - 4 months ago


Liihen, Homeriz and Poh Huat, which export mostly to the United States and Europe, will benefit. For smaller caps, Wegmans, which recently expanded its capacity, has huge growth potential to diversify its customer base and increase its product range.

PETALING JAYA: Malaysia’s furniture industry is expected to generate impressive earnings momentum in the second half of the year, driven by a structural demand shift on the US-China trade tension, pent-up demand for furniture in line with the work-from-home trend, as well as margin expansion on price hikes and improved utilisation.

UOB Kay Hian, in a sector report yesterday, highlighted that particleboard companies could also stage a turnaround to deliver spectacular earnings, riding on the robust demand, higher prices and favourable sales mix.

“Liihen, Homeriz and Poh Huat, which export mostly to the United States and Europe, will benefit. For smaller caps, Wegmans, which recently expanded its capacity, has huge growth potential to diversify its customer base and increase its product range.

“Particleboard companies such as Mieco and Heveaboard are set for a turnaround from losses in the first half of 2020.

“Mieco and Heveaboard have seen overwhelming demand from local furniture manufacturers since the recovery movement control order in June.

“Their order visibility remains good through to the first quarter of 2021, even though their production lines are currently running close to full capacity at 80% to 90% utilisation rates, ” the research house said, upgrading its call to “overweight” for the sector.

The average selling price (ASP) of chipboards has been revised aggressively, surging by as much as 20% to 30% as a result of a shortage of particleboards to fulfil explosive export demand, particularly to the United States.

Since the United States imposed an additional 15% tariff on China consumer products, Malaysia’s furniture exports to the country have increased 38% year-on-year to RM4.7bil in 2019, from RM3.3bil in 2018, supporting UOB Kay Hian’s view that there is spillover of orders from China due to the trade uncertainty.

Apart from that, the research house noted that new home sales in the United States have swiftly recovered to reach a multi-year high, supporting the steep increase in furniture sales volume.

Globally, Covid-19 stimulus packages and quantitative easing, combined with work-from-home trends, have created demand for household products and furniture.

As such, local particleboard companies are poised for a new leg of earnings growth, driven by ASP hike, sustainable orderbook visibility with delivery lead time to at least four months, as well as lower raw materials prices which lift profit margins, according to the research house.






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