KUALA LUMPUR (April 13): Hong Leong Investment Bank (HLIB) Research said it is “cautiously optimistic” on HeveaBoard Bhd’s FY22 prospects, as the temporary halt in the group’s particleboard factory’s operations in January of this year will be partially offset by the shipment of deferred finished goods from the previous quarter, coupled with strong sales volume of the group's ready-to-assemble (RTA) furniture segment.
In a note on Wednesday (April 13), HLIB analyst Tan Kai Shuen said HeveaBoard decided to temporarily halt its particleboard segment operations in January to clear finished goods in its warehouse and rebuild its raw material inventory, following a build-up in the former and the latter running low.
“HeveaBoard took the opportunity during the downtime period to perform its two-week annual maintenance. The factory resumed its operations in February and raw material supply is back to a healthy level by March,” he added.
While HeveaBoard’s particleboard segment was undergoing a momentary hiccup, Tan said the group’s RTA segment ran at full force to cater for an increased sales volume from the Japanese market as Japanese buyers stock up in preparation for the Japanese fiscal new year, which started on April 1, 2022.
“Management also shared that they have submitted applications to bring in foreign workers mainly to its RTA segment. With authorities in the midst of relaxing the intake of foreign workers as well as the opening of Malaysia’s borders on April 1, the worker intake will enhance the capacity of its RTA segment significantly,” he added.
The HLIB analyst said that in order to mitigate a labour shortage risk, HeveaBoard is to spend RM10 million in capital expenditure (capex) to automate more processes in its RTA segment.
“In addition, HeveaBoard is also spending another RM20 million to construct a new hostel that will be in full compliance to the Housing Act with a capacity of 1,500 workers for its RTA segment,” he added.
Meanwhile, on a good note for the group’s particleboard segment, Tan said the segment’s sales volume to the Japanese market has increased significantly since the second half of FY21, with the latter now being one of its major export markets.
The HLIB analyst said this was a result of Japanese buyers diverting their orders from Europe to the Southeast Asia region amidst increased costs arising from European wood manufacturers’ increased average selling prices, and increased logistic costs as a result of elevated energy prices and lingering supply chain issues.
“HeveaBoard benefitted greatly from this trade diversion and was able to expand its market share in Japan, capitalising on its vast experience and foothold in the Japanese market (its products are already in compliance with the stringent Japanese standard),” he said.
He added that the group will invest RM10 million capex to add a new short cycle line to produce value-added boards — such as MFC laminated boards — that will provide a higher margin compared to its raw boards.
Tan maintained his “buy” call on HeveaBoard, with a target price of 63 sen pegged to a price-to-book ratio (P/B) multiple of 0.85 times based on FY22 book value per share (BVPS) of 72 sen.
“As the raw material supply has returned to a healthy level, we anticipate that HeveaBoard should see sequential improvement in 2QFY22 (second quarter of FY22). This improvement is further bolstered by the increasing particleboard export sales to the Japanese market that fetch a better margin compared to other export markets.
“While we are cognizant that glue cost is increasing following the oil price hike, we understand that the price level is still below its peak in December 2021,” he added.
At 10.31am on Wednesday, HeveaBoard shares gained one sen or 1.9% to 53.5 sen, giving the particleboard manufacturer a market capitalisation of RM300.93 million.
Source: TheEdge - 14 Apr 2022
Chart | Stock Name | Last | Change | Volume |
---|
Created by edgeinvest | Mar 28, 2024
Created by edgeinvest | Mar 28, 2024
Created by edgeinvest | Mar 28, 2024
Created by edgeinvest | Mar 28, 2024
Created by edgeinvest | Mar 28, 2024
Created by edgeinvest | Mar 28, 2024
Created by edgeinvest | Mar 28, 2024