SHAH ALAM: Latitude Tree Holdings Bhd is anticipating a 10% year-on-year (y-o-y) revenue growth for the financial year ending June 30, 2019 (FY19). The furniture maker expects greater demand from the US as the Sino-US trade war drum hits louder.

Latitude Tree finance director Yeoh Joe Son said the company’s earnings for FY19 should be better than that in FY18, as it expects Americans to buy more furniture from Asean, instead of China.

“The US has been importing mostly from China but now they are shifting to Southeast Asia. They are flooding the market with orders. As manufacturers, we can be more selective and pick orders with higher margins,”he told the media after the company’s annual general meeting yesterday.

He said Latitude Tree could see a full capacity utilisation in FY19, using up the remaining 10% to 20% idle manufacturing capacity.

Competition is also not an issue, said Yeoh, as there will be plenty of orders for different manufacturers in the region.

He said the bigger challenge would be to get sufficient manpower to meet higher demand, although the company is not looking to expand its capacity as the trade war may just be a temporary boost. “We are not planning to expand capacity because this is more of a short-term effect, probably about one to two years.”

However, Latitude Tree will still invest in upgrading existing facilities, allocating about RM13 million to upgrade some of its machinery and another RM25 million for a new upholstery line.

“With higher demand, we expect revenue to grow about 10% in FY19. The higher demand should also be reflected in our upcoming second-quarter results, which should be better than the first quarter’s,”Yeoh said.

FY18 was challenging for Latitude Tree given higher average raw material prices, the sale of more lower margin products and an increase in labour costs in Vietnam as a result of an adjustment on minimum wages. There was a fire incident too, resulting in the writing off of RM13.9 million in inventories and property, plant and equipment, on top of a foreign exchange loss of RM5.1 million.

Latitude Tree’s net profit dropped sharply to RM12.08 million versus RM69.07 million a year earlier. Annual revenue for FY18 dropped 4.2% y-o-y to RM752.83 million from RM786.02 million.

For the first quarter ended Sept 30, 2018 (1QFY19), the company’s net profit fell 14.8% to RM13.13 million from RM15.41 million. Revenue was slightly lower at RM214.19 million, from RM216.78 million a year earlier.

Yeoh said the contraction in revenue was due to a weakening US dollar against the ringgit compared with that a year ago, but pointed out its sales saw a 2.5% increase in US dollar terms, due to higher orders.

He also said the company is looking to expand its exports to China due to a steadily growing demand there. However, for now the US remains Latitude Tree’s largest export market, accounting for 90% of its exports, and the remainder are exports to Europe, the Middle East and China.