Classic Scenic Bhd (“CSCENIC”) is a solely wooden picture frame moulding manufacturer listed on the Main Market of Bursa Malaysia. CSCENIC has recently announced a strong 1HFY22 results where its net profit has surpassed FY21’s by 36% underpinned by higher export sales of wooden picture frame and moulding, strengthening of USD and higher efficiencies in production. According to management inflationary pressure does not impact sales to its export markets as orders are still intact. Moving forward CSCENIC’s margin will further improve with its venture into upstream activities. We forecast CSCENIC to register earnings of RM16.8m and RM18.0m in FY2023 and FY2024 respectively. BUY with a target price of RM1.31 based on 20x PER (3 years average PER) over FY23 EPS.

CSCENIC ventured into upstream timber sawmilling supplying 30% of raw material to its in house downstream production. The upstream business which is currently running at 20% utilisation has brought a cost saving of RM2m for the group and the production will ramp up progressively. The semi and end product, ready-made wooden picture frame and moulding is 90% exported to North America, Australia, Europe and Japan. Throughout its 30 years journey in the frame industry, it has built a solid track record by delivering quality wooden frame to large retail stores such as Michaels Store Inc, Hobby Lobby Inc and Larson Juhl in the US.

During the pandemic era, a number of regional wooden picture frame and moulding players had shut down or down-sized. The shortage of wooden picture frames and mouldings supply has given CSCENIC opportunity to seize larger market share. The US China trade war has also shifted buyers to source wooden picture frames and mouldings from SEA countries.

CSCENIC owns 6 factories located in Rawang, Selangor and 1 newly acquired factory in Bidor Perak with a total area of 1m sq ft supported by a 343 workforce. Post-acquisition of the 230k sq ft Bidor plant, its aggregate installed capacity will increase from 32m feet to 48m feet per annum.

The company is currently in a net cash position as there are no borrowings. Management has indicated that dividend for the current year be held back, reserved for capacity expansion in newly acquired Bidor plant till FY2024.

Source: Rakuten Research - 7 Sept 2022