• Mobilia offers a wide range of home furniture and consistently launch new designs to suit the latest market trends and preferences. We are sanguine on Mobilia’s prospects due to the resilient demand from the adoption of work-from-home trend.

• We project earnings to recover by 48.1% to RM10.8m in FY21f, boosted from expansion of the new factory in March 2020 that is able to undertake additional orders, rising trend of work-from-home and steady global population growth.

• Mobilia is valued by pegging its FY21f core EPS of 2.7 sen to 10.0x PE (15% discount to peers average of 11.8x), leading to a FV of RM0.27.

Company Background

• Mobilia Holdings Bhd’s (Mobilia) history traces back to the incorporation of Mobilia International on 16th March 2010, principally involved in the assembly and sale of home furniture, primarily focusing on dining room furniture. Mobilia started off at a rented factory with a built-up area of approx. 33,000 sqf in Muar, focusing on the manufacturing of wood-based dining room furniture according to designs provided by the customers. Throughout the years, Mobilia has designed their own home furniture and exported to countries worldwide. In 2013, Mobilia diversified into manufacturing of living room furniture.

• In 2015, Mobilia together with a third party purchased a parcel of land in Muar measuring 16.5-ac. in total (12.5-ac. Belongs to Mobilia and remainder 4.0-ac. was taken up by third party before Mobilia purchased the remainder in 2016 for the construction of our own manufacturing plant to expand our production capacity. In 2017, Mobilia further expand into the manufacturing of bedroom sets. In January 2020, Mobilia completed the construction of own manufacturing plant (Phase 1A) with total built-up area of the manufacturing operations expanded from 124,348 sqf to 261,023 sqf. The home furniture are manufactured an packaged in 2 forms, namely fully assembled furniture and ready-to-assemble (flat packed) furniture.

• Mobilia manufacture a wide range of wood-based furniture products such as wooden upholstered furniture with fabric and Polyurethane cushions. The home furniture can be categorised into three main categories; dining room furniture, living room furniture and bedroom furniture.

• Based on FY19 revenue of RM75.6m, the dining room furniture rakes up to RM45.9m, representing 60.8% of total revenue, followed by RM16.6m from living furniture (21.8% of total revenue), RM11.8m from bedroom furniture (15.7% of total revenue) whilst the furniture parts and other amounted to RM1.3m (1.7% of total revenue). Between FY17-19, the dining room furniture segment anchored the revenue via contributing between 60.8-68.1% to the group’s total revenue, respectively.

• Geographical wise, export sales traditionally took the larger pie of the total revenue with RM50.2m (66.4% of total revenue) derived from overseas markets, predominantly to North America countries such as USA, Mexico and Canada as well as countries around Asia.

• We gather that Mobilia’s annual production capacity (prior to the factory re-location) for chairs was at 270,298 units and tables at 97,524 units. In FY19, the utilisation rate stood at 92.7% and 82.8% respectively. In March 2020, Mobilia has completed the move to the current manufacturing plant (Phase 1A) from the previously rented premises. A month later, Mobilia commissioned 2 new units of conveyor system for spray painting in the manufacturing plant (Phase 1A). The increase in the length of conveyor system and better spray painting capabilities has improved the combined annual production capacity to 475,881 sets of chairs and 233,576 sets of tables.

• Due to the implementation of Movement Control Order (MCO) in Malaysia, Mobilia’s operations was temporary halted since 18th March 2020 before resuming operations on 4th April 2020 (on limited capacity) and subsequently running at full capacity on 30th April 2020. Although there were some hiccup in production and delivery process, Mobilia managed to deliver all 49 delayed orders in July 2020 and secured approximately 100 new orders during the MCO and CMCO period.

Industry Overview

Malaysia’s construction industry outlook

• The Malaysia furniture industry has developed to one where many furniture manufacturers are now able to undertake product design and development, from prototype creation, detailed product design, development of product concepts and sourcing of materials to manufacturing of the furniture. Specific design and development capabilities add further value to the products and enable the domestic furniture manufacturers to increase their competitiveness in the international markets.

• Historically, Malaysia’s furniture export rose from RM10.07bn in 2017 to RM11.10bn in 2019. By 2019, Malaysia is ranked as one of the top 15 furniture exporters in the world and in 2019 with Malaysia accounted to 1.6% of total global furniture exports of USD167.66bn (RM694.57bn). Mobilia’s export market share stood at 0.6%, based on its export revenue of RM50.2m in FY19.

• The US is the largest export country for Malaysian furniture, which largely affects the export demand. In 2019, furniture exports to the US accounted for 42.1% of total furniture export from Malaysia, followed by Japan (7.3%), Singapore (7.0%) and others (43.6%). Demand for furniture remained on the rise in tandem with the overall growth in population and increasing urbanisation. The world population grew at a 2Y CAGR of 1.1% from 7.55bn in 2017 to 7.71bn in 2019. This has resulted in global furniture consumption to increase at 2Y CAGR of 2.8%, from USD469.48bn in 2017 to USD495.68bn in 2019.

• Over the years, the escalating trade tension China and the US has led to the latter to increase its import tariff from 10% to 25% on USD200.0bn worth of products, including furniture from China effective 10 May 2019. The increase in import tariff led to a shift in demand of furniture exports towards other countries including Malaysia that saw 24.4% YoY growth in the exports of furniture to the US to USD1.12bn (RM4.64bn) in 2019.
   
• Following the positive historical growth in the global furniture market, outlook of the furniture industry remain favourable as furniture is deemed to be an essential item for comfort and functional purposes to support daily activities. The furniture export industry in Malaysia is expected to emerge stronger when global supply chains resume as economic conditions recover from the impact of the Covid-19 pandemic.

Investment merits

Wide range of products and consistently launch new designs tailored to the latest domestic and foreign market trends and preferences

• Apart from the existing 400 designs of products, Mobilia offers options to customise furniture in specified dimensions and designs upon request. The extensive range of home furniture and continuous launching of new designs by the D&D team serves as a foundation to strengthen the competitive edge in the furniture market. From FY17-19, Mobilia launched an average of 60 new designs on an annual basis.

Diversified market base

• Since commencement in 2010, Mobilia has been consistently penetrating into various markets to countries across Asia, North America, Europe, Middle East, South America, Australasia and North Africa. The successful venture demonstrates the ability of Mobilia to manufacture home furniture products that is able to cater to the varying consumer preference and requirements in different markets. At the same time, the diversified market base can effectively mitigate the risk of dependency on any particular markets.

Established industry network and long term relationships with customers and supplier

• Among the top 5 major customers in FY19, all of these major customers have business dealings with Mobilia for more than 3 years, whereby 2 out of these major customers has been the picture since the inception in 2010. The ability to maintain long term relationships with existing customers is a testament of Mobilia’s capability in manufacturing home furniture that meets the customers' requirements and standards.

Adoption of automation in manufacturing process to improve production process

• To ensure production efficiency, Mobilia has adopted automation in various parts of the manufacturing process such as cutting, drilling, tenoning, mortising, milling, grinding and carving. Mobilia has also have conveyorised automated spraying systems for smaller furniture parts such as table legs and chair legs. During FY17 to FY19, Mobilia invested approximately RM9.7m for purchases of several automated and semi-automated machinery and equipment, including CNC machines, conveyor system for spray painting and automated painting machines.

Financials

• Both Mobilia’s revenue and core net profit has recorded a surge in FY17-19, registering RM75.6m (3Y CAGR of 16.5%) and RM8.4m (3Y CAGR of 15.9%), respectively in FY19 on the back of rising furniture sales volume, particularly towards the export market.

• Moving forward, we are projecting the core net profit to decline by 13.7% YoY to RM7.3m in FY20f, due to the partial one-off listing expenses (RM1.0m) incurred during the period, coupled with the supply chain disruption arising from Covid-19 in 2Q2020. Nevertheless, Mobilia has already fulfilled all 49 backlog orders in July 2020, whilst 100 new orders valued approximately USD2.8m was secured during the MCO period (March-June 2020) has cushioned further deterioration.

• Moving into FY21f, we reckon that Mobilia’s top and bottom line is primed from a swift recovery, rising 22.5% and 48.1% to RM86.3m and RM10.8m respectively, supported by the expansion into the new factory in March 2020 that is able to undertake additional orders. At the same time, we note that MCO 2.0 did not have any adverse impact on the group’s operations that is deem to be essential. For that, rising trend of work-from-home and steady global population growth may also provide a boost in demand.

Valuation

• At an IPO offer price of RM0.23, Mobilia’s forward PE valuation in FY21f stands at 8.6x, based on our estimated FY21 EPS of 2.7 sen. We arrived our fair value of RM0.27 (17.4% upside from its IPO price) by assigning a target PE of 10.0x to its FY21f EPS. The assigned target PE is discount of approximately 15.0% to the furniture manufacturers peers average listed on Bursa Malaysia at 11.8x due to the smaller market capitalisation of Mobilia.

Source: Mplus Research - 8 Feb 2021