Mobilia Holdings Bhd (MOBILIA), a wood-based home furniture manufacturer is seeking to expand its manufacturing plant plus investment on automation as well as design and development (D&D) to support long term growth. Recommend BUY with a target price of RM0.36 based on 13x PER FY21 as per peer average.

MOBILIA was initially involved in the assembly and sale of home furniture primarily dining room furniture. The company then ventured into furniture manufacturing and expanded to export to various countries. At the moment, the group has successfully extended its range to dining room furniture, living room furniture and bedroom furniture with sales of 60.8%, 21.8% and 15.7% respectively in FY19. MOBILIA has an in-house D&D team offering over 400 furniture designs based on specification of customers. The D&D expertise helps the group to diversify its market base internationally which has seen the export segment to register a CAGR of 27.4% from FY17 to FY19. Presently, over 70% of the sales are contributed via overseas markets that include North America, Asia, Europe and South America.

Expansion of the manufacturing plant will be carried out in phases and RM5.8m of the IPO proceeds has been allocated for the construction of office buildings and showroom while Phase 2 will house expansion of woodwork manufacturing and fabric upholstery works for design flexibility with target completion in May 2022. To cater for the anticipated burgeoning sales order due to higher capacity from Phase 1 expansion, RM1.3m will be utilised to purchase machineries. This will increase automation in the manufacturing processes which are essential for MOBILIA’s labour intensive business to enhance efficiency and margins. Meanwhile, MOBILIA also targets to develop and launch at least 60 new designs annually. RM1.8m will be used to repay bank borrowings, translating to interest savings of RM62,000 per annum.

The group does not have a formal dividend policy and we expect the group to preserve cash for expansion in FY21. Post listing, net gearing will improve to 0.1x from 0.6x. As the group has started Phase 1 expansion in 2020 which increased annual capacity for chairs and tables by 252% and 379% respectively, we anticipate higher sales orders to fulfil the timely expansion, underpin by higher global demand for home furniture as consumers seek to improve home living space due to movement restrictions caused by the Covid-19 pandemic.

Source: Rakuten Research - 23 Feb 2021