Short-term recovery seen for wood-based manufacturing

PETALING JAYA: Short-term recovery is expected for furniture players especially firms with operations in , as the US has adjusted offshore sourcing of furniture from to Southeast Asia (SEA), particularly , according to HLIB Research.

Malaysian furniture manufacturers that have operations in Vietnam include Poh Huat Resources Holdings Bhd and Latitude Tree Holdings Bhd, which are likely to benefit in the near term.

According to timber industry news, Vietnam’s wood product exports increased 18.3% year-on-year (yoy) in the first four months of 2019.

However, with less favourable growth outlook, HLIB said weak sentiment is likely to persist for global construction and property sector, and hence demand for furniture.



“We do not expect to see significant volume growth, however earnings growth is likely to be supported by the weaker ringgit against to RM4.12. Engineered wood players will continue be affected by price war as a result of oversupply of boards,“ it said in a research note.

Despite the overcapacity of particleboard in the region, HLIB said local board producers managed to hike selling prices riding on the recovery of furniture players.

“With that, we might see a short-term recovery among the local engineered wood players but we opine that it will not take long for them to readjust average selling price downwards back to industry’s average given the oversupply condition.”

For the rest of the year, it will be unlikely for any major increase in production volume due to weak sentiment in the construction and property sectors. However, it continues to sees earnings growth for Lii Hen Industry Bhd (+28% yoy) mainly on the back of weaker ringgit against US dollar.

Out of the four wood-based companies under HLIB’s coverage, only Lii Hen reported earnings above its expectations, while the other three came in below in the first quarter. This was mainly due to weaker global demand for furniture and the intense price competition among the engineered wood players.

furniture and wood sector saw a muted showing in 1Q19, with average industry revenue improving only marginally by 2.0% yoy supported by companies with heavy US market exposure such as Lii Hen and Poh Huat.

HLIB Research maintained its neutral view on the sector with forecast unchanged.

“Despite stronger US dollar outlook and lower material cost, we take a cautious stance on the sector due to uncertainties in market competition. Our top pick is Lii Hen for its position as the market leader in the wood based furniture space in Malaysia, strong balance sheet, generous dividend payout and ongoing efforts to adopt effective cost management.”



Source: The Sun Daily





Leave a Reply

Your email address will not be published. Required fields are marked as *

Time limit is exhausted. Please reload CAPTCHA.