HeveaBoard benefits from e-commerce boom
20 Jan 2022
The prospects of Heveaboard Bhd looks positive given the increase in demand from the Japanese market for its particleboard, the potential capacity increase in ready-to-assemble (RTA) segment from foreign labour intake as well as encouraging RTA sales growth to e-commerce sellers.
Hong Leong Investment Bank Research (HLIB Research) in its latest report has upgraded HeveaBoard to a “buy” call with a higher target price of RM0.63 from RM0.43 previously.
The research house also attributed the optimism on the group’s prospects to the scaling up in capacity for its fungi cultivation segment as well as focusing to produce higher margin boards.
Notably, HeveaBoard aims to scale up capacity utilisation of its fungi cultivation segment from the current 50% to 100% in the financial year ending Dec 31, 2022 (FY22).
“With a higher utilisation rate and better economies of scale, this segment should start contributing positively to the group’s bottom line in FY22,” it said.
Meanwhile, it expects the particleboard segment to improve in FY22 as there is expectation of wood cost and supply to normalise, with weather conditions improving from January this year and glue cost easing from next month onwards.
For its RTA operations, HLIB Research said additional foreign workers would provide further upside to the segment.
“While there is no definitive timeline on when the foreign workers can come in, the arrival of additional workers is expected to add around 20% to 30% capacity to its RTA segment,” it added.
On a separate note, the RTA segment is also benefitting from the e-commerce boom due to the flat-packed form of RTA which is easier to deliver.
Although sales to e-commerce channel currently contributes less than 5% of its RTA revenue, HLIB Research expects potential sales growth from this channel.
This is especially if the group has additional labour that would enable optimisation in the production line to cater to smaller volume orders from this channel.
The research house also expects a slight uptick in RTA sales as local flood victims replace their damaged furniture due to the recent flood in Peninsular Malaysia.
Given the upside potential in the group’s earnings, HLIB Research is maintaining its forecasts pending the release of the group’s results for the fourth quarter ended Dec 31, 2021.
“HeveaBoard also has a favourable environmental, social and governance (ESG) profile due to its exposure in a sustainable industry and the positive initiatives the group has taken to improve its ESG characteristics,” it added.
With HeveaBoard looking to produce higher quality particleboard, HLIB Research said that this development may not be immediately evident in the group’s earnings in the the second half of 2021.
This is due to the limited capacity utilisation in the third quarter of 2021 as a result of wood shortage stemming from saw mill closure during National Recovery Plan phase one as well as higher log cost.
Furthermore, rising glue costs from skyrocketing urea price as well as the wet season and floods in the fourth quarter of 2021 would deter the positive development to be evident in the group’s earnings immediately.
Source: The Star