Hevea’sreported 4Q22 core net profit of RM6.1m (3Q22: -RM3.1m; YoY: -15.3%) bringing FY22’s sum to RM10.2m (FY21: -RM1.8m). The results came in above our expectation, at 127.5% of our full year forecasts. The results beat was largely due to insurance compensation claim from windstorm-damaged facilities at RTA segment. Despite the recovery from the loss in 3QFY22, demand and earnings visibility remain clouded amidst an uncertain economic environment. In view of the uncertainties ahead, we cut our FY23/24 forecasts by -11.8%/-17.1% respectively. Maintain HOLD with a slightly lower TP of RM0.34 pegged to a lower P/B multiple of 0.45x based on FY23 BVPS of RM0.75. In addition, the group has a healthy balance sheet with NCPS of 19.3 sen.

Above expectation. Hevea’s reported 4Q22 core net profit of RM6.1m (3Q22: -RM3.1m; YoY: -15.3%) brought FY22’s sum to RM10.2m (FY21: -RM1.8m). The results came in above our expectations, accounting for 127.5% of our estimate. The results beat was largely due to higher operating income as the group received an insurance compensation claim from windstorm-damaged facilities involving Hevea’s RTA segment. FY22 core net profit figure was arrived at after adjusting for net foreign exchange loss of RM761k.

Dividend. None (4Q21: none). FY22: None (FY21: 1 sen).

QoQ. Revenue increased by 36.4%, contributed by particleboard (+7.5%) and RTA (+63.7%). The improvement at RTA segment is largely due to improved sales volume. Higher sales volume at RTA segment, coupled with insurance compensation claim from windstorm-damaged facilities during mid-2022 have resulted in a turnaround in 4Q22 performance with a core net profit of RM6.1m (from a core net loss of -RM3.1m in 3Q22).

YoY. Revenue declined by -14.3%, dragged by both the particleboard (-23.5%) and RTA (-7.9%) segments. The decrease is mainly due to lower sales volume in both segments. Consequently, core net profit declined by -15.3%.

YTD. Revenue increased by 9.4% due to improvements in both the particleboard (+4.7%) and RTA (+12.7%). Despite lower sales and production volume in the particleboard segment, the improvement was largely due to a better product mix with higher sales of value-added products as well as higher ASP. Improvement in the RTA segment was mainly due to higher operational days vs SPLY as there were still Covid interruptions. Both segments also benefitted from the stronger USD during the quarter. In turn, the group recorded a core net profit of RM10.2m (from -RM1.8m SPLY).

Outlook. Despite the results beat, we note that it was largely due to a significant increase in Hevea’s other income, which came from an insurance compensation claim (figure not disclosed). As for future prospects, Hevea’s earnings remain clouded amidst an uncertain economic environment plagued with inflationary pressures. Should inflation remain elevated for longer, consumers disposable incomes will be affected, negatively impacting demand for Hevea’s products. We note that Japan’s inflation rate has been increasing for the past few months (Japan is the group’s largest export market), which could impact Japanese buying power in subsequent quarters.

Forecast. In view of the uncertainties ahead, we cut our FY23/24 forecasts by -11.8%/-17.1% respectively.

Maintain HOLD with a slightly lower TP of RM0.34 (from RM0.38) pegged to a lower P/B multiple of 0.45x (from 0.5x) based on FY23 BVPS of RM0.75. While Hevea managed to recover from its loss making quarter in 3QFY22 there remains much uncertainties in the wider economy ahead, clouding the group’s demand outlook and earnings visibility. Nonetheless, the group has a healthy balance sheet with net cash of RM109.2m or NCPS of 19.3 sen (55.9% of its market capitalization).

Source: Hong Leong Investment Bank Research - 24 Feb 2023