HLBank Research Highlights

Author: HLInvest   |   Latest post: Thu, 13 Sep 2018, 04:53 PM


HeveaBoard - Weaker Ringgit to Benefit HEVEA; Sideways Breakout

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HEVEA’s bottomline may gain traction with the stronger USD outlook in 2H18 as more than 90% of the revenue is USD denominated. Furniture demand is likely to surge in Japan ahead of the Japan Olympics 2020, where HEVEA having the Japanese Industrial Standard (JIS) certification could be one of the beneficiaries within the region. Besides, the escalation in trade tension between the US and China could benefit Malaysia’s products (seen as more competitive compared to products in China). Resistance will be set around RM0.935-0.985, followed by RM1.05. Meanwhile, support will be set around RM0.84-0.855 and cut loss at RM0.83.

Company profile. Incorporated in 1993 and subsequently listed on the Main Board of Bursa Malaysia in Jan-2005, HeveaBoard (HEVEA) manufactures, trades and distributes a wide range of particleboard and particleboard-based products (in particularly, ready-to-assemble furniture products). HEVEA obtained Japanese Industrial Standard (JIS) Mark Certification for its Super E0 and E0 particleboard product range, resulting it the first particleboard manufacturer in Malaysia to be awarded one of the most recognized industrial standards in the world.

Weaker ringgit outlook to benefit HEVEA. More than 90% of the revenue is USD denominated, making the company a beneficiary of stronger USD. Also, as the USD/MYR trend has been on a weakening path, we think it is likely to boost Hevea’s bottomline in 2H18.

Japan Olympics 2020 may boost furniture demand. In view of the upcoming Japan Olympics 2020, coupled with the fact that Japan is one of the most heavily import dependent countries in the world for wood based products, we see huge potential of the surging demand for furniture-related products, which may benefit HEVEA as they have obtained the Japanese Industrial Standard (JIS) certification back in 2004.

Potential trade war beneficiary. As Trump’s administration has proposed to impose 25% tariffs on USD200bn of Chinese goods, selected furniture and parts of furniture in under this list. Hence, should there be any prolong trade war between the US and China and tariffs, if imposed on China sourced products, Malaysia’s products could be seen more competitive compared to those produced in China. Moreover, any spill over of furniture orders towards Malaysia should benefit wood based manufacturer as a whole.

Poise for sideways consolidation breakout. After consolidating sideways between the RM0.855-0.895 levels over the past two week, it has surged higher yesterday above RM0.88, forming a positive candle accompanied by higher volumes. The MACD Line is hovering above zero, while the Histogram has turned higher. The RSI and Stochastic are recovering above 50 level. Should there be a consolidation breakout above RM0.895, next target will be pegged around RM0.935-0.985, followed by a LT target of RM1.05. Support will be set around RM0.84-0.855, with a cut loss set below RM0.83.

Source: Hong Leong Investment Bank Research - 9 Aug 2018

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