Result

• Above expectation. HeveaBoard Berhad (Hevea) recorded 4Q20 net profit of RM10.3m, which surged 33.8% yoy and 25.6% qoq. Overall, the Group achieved a net profit of RM15.9m in is full year 2020 results, up 10.4% yoy amid revenue tumbled 7.3%. The full year results are above our estimate by exceeding our full year net profit forecast by 33%. The stronger-than-expected performance was due to higher-than-expected sales and margin achieved under its Particleboard segment.

Comment

• Particleboard segment spurred 2020 growth. The Group achieved better performance for its full year results mainly anchored by its Particleboard division as segmental PBT grew 140.6% yoy amid lower top line, -16.6% yoy. The lower revenue was due mainly to production interruption during MCO and high intercompany sales, which would be eliminated under account comnsolidaiton. Despite lower sales and production volumes, the PBT improved thanks to better USD/MYR, lower raw material cost and improving average selling price of the particleboard during the 4Q.

• Lacklustre RTA Furniture for the year. On the other hand, we witnessed the drop in RTA Furniture as segmental PBT and revenue declined by respective 26.1% yoy and 2.4% yoy. The restrictions imposed during the MCO had resulted in higher costs of operations as optimum production capacity could not be attained.

• Proposed third interim dividend of 0.5 sen/share. Hevea has proposed a third interim dividend of 0.5 sen/share for 4Q20. Thus far, the Group has declared a dividend of 1.5 sen/share for FY20. We envisage Hevea to propose another 0.5 sen/share of final dividend to bring the full year dividend to 2.0 sen/share or equivalent to a dividend yield of 3.0% based on current closing of the share price.

• Rising material costs could derail recovery momentum. Moving forward, we believe the weakening of USD against MYR and rising raw material costs (as soaring crude oil prices would translate into the higher glue and chemical costs) to weigh on Hevea’s bottom line. Furthermore, the rainy weather in end of last year and early this year also affected the rubber wood supply, causing prices to climb.

Earnings Outlook/Revision

• We maintain our 2021-2022 earnings forecasts.

Valuation/Recommendation

• Maintain HOLD on Hevea with an unchanged target price of RM0.64. Our target price is pegged at PE multiple of 18x 2021F EPS. We opine that its business outlook remains fluid given current economic condition coupled with unfavourable raw material cost concerns. We reckon that Hevea’s earnings outlook is highly sensitive to the margin fluctuation which we have witnessed for the past few years.

Source: JF Apex Securities Research - 26 Feb 2021