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jfapex

Author: jfapex   |   Latest post: Fri, 15 Jan 2021, 8:43 AM

 

HeveaBoard Berhad - 3Q20: Pleasant surprise

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Result

  • Above expectation. HeveaBoard Berhad (Hevea) recorded 3Q20 net profit of RM8.2m, posting a strong turnaround from 2Q20 net loss of RM4.5m and soaring 141.2% yoy. Overall, the Group achieved a net profit of RM5.6m in 9M20, still down 16.4% yoy. Although 9M result accounts for 64% of our full year net earnings forecast, we deem the result above expectation as the Group traditionally performs strongly during 4Q.

Comment

  • Stellar performance across the board. The Group’s better yoy result was mainly underpinned by its Particleboard (segmental PBT: +108.7% amid lower top line: -21.5%) and RTA Furniture (segmental PBT: +92.0% on the back of higher top line: +39.2%) segments. The favourable USD/MYR and lower raw material costs lifted the product margin of the Particleboard division (PBT margin: +9.3ppts). Meanwhile, rising export sales coupled with higher profit margin boosted the RTA Furniture segment. As expected, Hevea managed to pull out from losses in the immediate preceding quarter mainly due to the lifting of the Movement Control Order (MCO) which allowed the Group to operate back to the normalcy.   
  • Proposed second interim dividend of 0.5 sen/share. Hevea has proposed a second interim dividend of 0.5 sen/share for 3Q20 (vs 1.0 sen/share a year ago). Thus far, the Group has declared a dividend of 1.0 sen/share for FY20 (vs 2.0 sen/share in FY19). We envisage Hevea to propose another 0.5 sen/share of final dividend in the last quarter to bring the full year dividend to 1.5 sen/share or equivalent to a dividend yield of 2.1% based on current closing of the share price.
  • Envisaging better outlook for RTA Furniture whilst modest improvements seen in Particleboard moving forward. We opine that the RTA Furniture segment will continue to benefit from pent-up demand, stocking up activities and work-from-home arrangements as a result of disruption of supply chain and global lockdown. Having said that, the constraint of foreign workers has capped its upside. Meanwhile, we understand that its Particleboard segment has seen some improvements from local and export sales with overcapacity issue (from Thailand, China) and the US-China trade war have subsided. Overall, we envisage its ASP for RTA Furniture and Particleboard to trend downwards with higher local and internal sales coupled with weakening of USD against MYR during 2H20. Cost wise, the Group is generally benefited from lower glue and chemical costs as crude oil prices trend downwards. Rubber wood prices are holding steadily amid rising latex prices and could be trending upwards during year end with rainy season approaching.              

Earnings Outlook/Revision      

  • We lift our 2020F and 2021F net earnings forecasts by respective 36.4% and 21.7% to RM12.0m and RM20.2m after revising upwards of our segmental margins for both Particleboard and RTA Furniture segments.

Valuation/Recommendation

  • Maintain HOLD on Hevea with a higher target price of RM0.64 (from RM0.42). Our revised target price is now pegged at PE multiple of 18x 2021F EPS, which is at its 5-year upcycle PE. We opine that its business outlook remains fluid given current economic condition with another round of global lockdown pursuant to the second or third wave of the pandemic.
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