HeveaBoard to have fruitful 2018, with room for higher prices and profit margins: HLIB Research

PETALING JAYA: HeveaBoard Bhd is expected to have a fruitful year in 2018, with room for price adjustment for its products and better margin for its ready-to-assemble (RTA) furniture.
“We walked away from our small group meeting with HeveaBoard’s management feeling encouraged about the group’s near-term prospects,” said Hong Leong Investment Bank (HLIB) Research in its report yesterday.
HeveaBoard exports about 50% of its particleboard output to China, and management highlighted during the meeting there is room to raise its average selling prices (ASPs) for particleboards to China, given the recent strengthening of the yuan against the US dollar.
The company is also constantly working towards producing higher profit margin particleboards, and is one of the first two players in the market to introduce non-added formaldehyde board.
In addition, its new RTA furniture plant saw trial production started last week, with earnings delivery expected by early FY18. The plant focuses mainly on veneer-based RTA furniture, which is able to generate higher profit margins.
HLIB Research believes that there will be an increase in RTA sales by end-FY18, with the Tokyo 2020 Olympics as a catalyst.
“Historically, sales volume growth tends to be higher one to two years before global sports events for example, in FY14 for Rio 2016,” it said.
Meanwhile, Heveagro anticipates cultivation of King Oyster mushrooms by January 2018 and will be able to harvest three tonnes of mushrooms per day.

“The company is looking to sell these mushrooms at around RM10 per kg, a competitive price compared with the current market price of circa RM20 per kg,” said HLIB Research.
However, it noted that labour and rubber logwood issues still linger for the company. Post expansion, the group will need an additional 500 workers in order to achieve optimal production level.
“While the supply of rubber logwood had recovered in June 2017, price has remained sticky on the high side at RM160 per tonne. Nonetheless, the company has been constantly looking for opportunities to move up its value chain and enhance automation processes,” it said.
HLIB Research maintained its “buy” recommendation with unchanged target price of RM2.19. Its sensitivity analysis indicates that every 10 sen appreciation in ringgit against the US dollar will decrease Hevea’s profit by 11%, assuming a constant ASP.
HeveaBoard closed 1.92% higher yesterday at RM1.59 with some 1.54 million shares traded.