Lack of furniture demand as global economic headwind uncertain, says HLIB Research

NST Fri, Jan 06, 2023 09:46am - 1 year View Original


KUALA LUMPUR: There is an increasing lack of visibility over demand for furniture as global economic headwinds continue to be increasingly uncertain, according to Hong Leong Investment Bank Bhd (HLIB Research).

The bank-backed research house said that furniture demand is expected to decline with pandemic restrictions lifted worldwide and an increased risk of weakening the United States (US) economy. 

Furthermore, as travel restrictions are lifted, consumer spending is expected to shift from goods to travel and leisure. 

"In addition, the local furniture industry is expected to take a hit following the decline in new US home sales amidst the Fed's interest rate upcycle as the US is Malaysia's largest furniture export market. 

"As global economic headwinds continue to be increasingly uncertain, there is an increasing lack of visibility over demand for furniture as well," HLIB Research said in a note.

Meanwhile, HLIB Research said that as pandemic restrictions are lifted and workers start returning to the office, demand for furniture is expected to taper off from pandemic highs, which saw an increase in home office furniture demand when work-from-home (WFH) arrangements were more prevalent. 

Moreover, as international borders have opened, consumers are expected to shift their spending from buying home goods like new furniture to travel and leisure. 

"With no catalysts continuing to drive outsized demand for furniture like during the pandemic-WFH phase, furniture companies' revenues are expected to return to pre-pandemic levels as well," it said.

Overall, HLIB Research has downgraded its sector rating to Neutral from Overweight.

It said the top pick for the sector is Evergreen Fibreboard Bhd, given its diversified base of operations across Malaysia, Thailand and Indonesia, diversified customer base, and its vertically integrated business structure, which allows the company to have better cost management and a faster time to market. 

"Moreover, we opine that Evergreen's initiatives in enhancing competitiveness by moving its medium-density fiberboard (MDF) production lines to Indonesia (with the country's ready supply of logs and labour) will place the company ahead of its competitors in enticing demand," it added.

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