KUALA LUMPUR: Heveaboard Bhd is banking firmly on the Japanese market this year as the company's particleboard sales volume to the country continues to increase significantly since the first half (2H) of 2021.

Managing director Yoong Hau Chun said the quality of Heveaboard's particleboard complies with the high requirements of the Japanese market as the company had pioneered the commercial production of Super E0 particleboard in South East Asia, which conforms to the Japanese Industrial Standard (JIS A5908).

"We expect Japan will continue to be our major export market," he told The New Straits Times.

The Japanese market has become one of Heveaboard's primary export destinations due to Japanese purchasers shifting their orders from Europe to the Southeast Asia (SEA) region due to rising costs resulting from European wood manufacturers significantly increasing their average selling prices (ASP).

Furthermore, increased logistic costs in Europe due to rising energy prices and lingering supply chain concerns contributed to the market shift to Southeast Asia.

According to The Observatory of Economic Complexity (OEC), in 2020, Japan imported US$146 million in particleboard, becoming the 13th largest importer of particleboard in the world.

In 2020, the particle board was the 430th most imported product in Japan.

Japan imports Particle Board primarily from Austria, Canada, New Zealand, Germany and Romania.

"However, Japanese buyers have diverted their orders from Europe to the Southeast Asia region amidst increased costs arising from Europe.

"Our products are already compliant with stringent Japanese standards. As such, the orders are diverted to us.

"We believe this is the time to widen our pool in the Japan market," Yoong said.

He said Japan has consistently been the company's primary export market for its ready-to-assemble (RTA) sector, contributing to more than 70 per cent of the segment's revenue since 2018.

"For our particleboard sector, Japan has been one of our major exporting markets over 15 years ago," Yoong said.

To a question about other regional competitors entering the Japanese market, Yoong said that apart from Malaysia, Thailand is another competitive player entering the Japanese market.

Yoong said Heveaboard's RTA sector has room for expansion as the company has available space that can be used to add more production lines.

"This space comes from the new factory which was built in 2017.

"We can expand output capacity if we can enrol additional workers as not all production lines can be automated.

"With additional workers, the output is estimated to be 20-30 per cent higher," said Yoong when asked about challenges and the addition of foreign workers.

He said that in 2020, the company capitalised on various automation initiatives, namely new auto edging lines, hardware counting automation lines and automatic printing lines, which reduced the need for manpower ranging from 30 per cent to 70 per cent on certain processing lines while at the same time increased productivity of the RTA sector.

"We plan to invest another RM10 million in capital expenditure (capex) this year in the particleboard sector to add a new short cycle line to produce value-added boards — such as melamine faced chipboard (MFC) laminated boards — that will provide a higher margin compared to its raw boards.

"Automation is an ongoing process that we have embarked on since a few years back, and we will continue to invest in automation," Yoong said.

According to Hong Leong Investment Bank Bhd (HLIB Research) report, Heveaboard have submitted applications to bring

in foreign workers mainly to its RTA segment.

As the government relaxes the intake of foreign workers and the opening of Malaysia's borders from 1 April onwards, the worker intake will significantly enhance the capacity of Heveaboard's RTA segment.

HLIB Research also noted that Heveaboard is still continuously improving its production processes to mitigate labour shortage risk.

The company is also spending another RM20 million to construct a new hostel that will fully comply with the Housing Act with a capacity of 1,500 workers for its RTA segment.

Touching on Heveaboard's outlook, HLIB Research said that despite the underutilisation of its particleboard plant at the beginning of the year, earnings impact from this will be partially mitigated by the shipment of the deferred finished goods from the previous quarter as well as the strong sales volume from its RTA segment.

"As the raw material supply has returned to a healthy level, we anticipate that Heveaboard should see sequential improvement in the second quarter (Q2).

"This improvement is further bolstered by the increasing particleboard export sales to the Japanese market, which fetches a better margin than other export markets," HLIB Research said.