Malaysia Furniture - Recovery or Mini Boom?

 Malaysia Furniture – Recovery or Mini Boom?

Malaysia furniture and timber listed companies are quite a few in Bursa. Most of the companies are export oriented. With strengthening of US Dollar and recovery of our manufacturing sector, it is time to look at this sector and some companies as a whole.

 

According to Malaysia Timber Council, Malaysia timber export in 2021 is valued at RM22.744 billion. In particular wood furniture has a clear trend of growing mainly due to US-China trade dispute since 2019.

 

Malaysia Timber Council : http://mtc.com.my/resources-TradeInfo.php 

Malaysia Timber Export in MYR Million

USA has become the largest export market for Malaysia furniture makers since 2019 US-China trade war.

Factors affecting the industry:

• Raw material – rubberwood
• Raw material – adhesive (UF) – related to crude oil & more to fibreboard players.
• Labour cost and shortage – Minimum wages of MYR 1,500 impact.
• Shipping cost – related to crude oil and pandemic lockdown
• USD-MYR currency

 

UREA Price Chart

 

Positive Signs:

• Export increase in the first two months of 2022 – refer to Malaysia Timber Council
• China lockdown which resulted in severe port congestion
• USD-MYR favourable for exporters although not much
• USA-China trade war, USA-Canada trade war, Ukraine-Russa conflict (Russia banning export to West)
• Easing of labour shortage in Malaysia

 

Analysis by HLIB is upbeat on timber counter.

https://www.klsescreener.com/v2/news/view/973553/boom-in-wood-manufacturing-sector

Malaysia Export increase – Jan-Feb 2022 

 

 

Quick Summary

For furniture sector, I like Pohuat and Liihen for the consistence dividen payout. Latitud and Pohuat have overseas operations which are not affected so much of the minimum wages hike. Pohuat, Liihen and Latitude have 90% export to USA market. Interesting to know that most furniture exporters are cash rich companies.

Another set players are particle board manufacturers such as Hevea, Evergreen, MIECO and Focus lumber. Hevea is cash rich company and export to premium market like Japan. Its share price still is still a lagger compared to Evergreen and MIECO. Focus lumber is the only veneer supplier to USA market and commanding higher profit margin. It’s share price has appreciated a lot. I prefer Hevea as it is still a lagger.   

 

Malaysia is top 10 exporter according to MFI(not sure if this true). See below

 

Charts

Furniture Players

LiiHen

Potential Increase :          RM3.70

 

Pohuat

Potential Increase :          RM1.80

 

Latitud

Potential Increase :          RM1.90

MDF players

Hevea

Potential Increase :  RM 0.65

 

MIECO

Potential Increase :          RM 0.73

 

Evergreen

Potential Increase :          RM1.00

April 2022 Performance

 

SHARES ADDED

• Pohuat @ RM1.45

PACKAGING

BPPLAS is doing OK but Thong Guan Industries is luckluster. I have been holding for almost 1 year. Apart from small dividen, Thong Guan share price is flat. Indeed a very long term investment...zzzzz. 

 

FURNITURE

Add more Pohuat shares as I am optimistic on the coming Q result. Hevea is turning to profit after holding for 1 year. There still room for the price to go up. Generally furniture industry will be the next cycle of boom!

PLANTATION

This sector still performing very well because high CPO price. United Plantation has released their Q1 results which is lower than expected. The lower profit was due to hedging effect in which CPO price rose too fast in March 2022. However, I am confident that United Plantation will perform within a year because CPO furture contract is hovering aroung RM6k-RM7k. The company will catch up the CPO price very soon.  

INNOPRISE share price has apprecaited more than 80%. I still keep some shares for its dividen.

OTHER

The biggest surprise is CSC Steel. Appreciated approx 35%. The company also declare 14 cents dividen. Based on the purchase price of RM1.30 the yield is 10%!!

FAVCO and Samchem are flat. KAWAN share price has appreciated 7%. The company is also buying land for warehouse and factory expansion. Will keep an eye on this company.

FINANCE

ELK-DESA and Takaful are poor performers. Very disappointed especially Takaful.  RCE has appreciated a little. The only consolation is coming dividen from ELK-DESA and RCE.

Tambun Indah Land Berhad - Property Come Back??

Company : Tambun Indah Land Berhad

Business:

Small residential property developer in the mainland of Penang. The flagship development is Pearl city township which is near to Batu Kawan Industrial Park. The location is very strategic because of big tech firms are putting their factories in Batu Kawan industrial Park such as Vitrox, Pentamaster, Greatech and etc. The buying power should be strong as the employee of these companies are getting good pay.   

 

 

 

 

 

 

  

Fundamental:

 

 Financially healthy and no problem to pay dividen.

 

2021 revenue and profit surpass previous 3 years. The worst is over for the company and coming years should be profitable if company launch more developments with high take up rate.

 

Lates Q result:

 

Prospect:

• The current take-up is 76% which is not bad for a developer.
• Unbilled sales of RM131 million.
• Close proximity to Batu Kawan which is next phase of growth for tech companies.
• JF APEX- give target price of 93 cents.

 

Challenges:

• Slow launch of projects
• High building materials cost (cement/steel/etc)
• Labour shortage

 

Dividen:

 

Dividen policy is 40% of its profit. Assuming 7 cents dividen that will translate to 7.7% yield based RM0.90 price. Much better than peer of Matrix concept.

 

 

Technical Analysis on Chart:

Suggest buying at consolidation stage and hold for 6 months to 1 year duration. Buy at your own risk.

I have been holding this stock for few years. To be honest it was a mistake that I made without proper analysis. I do not want to sell at lost so keeping it until now.

Mar 2022 Performance

 

SHARES ADDED

• ATRIUM @ RM1.45
• WellCall @ RM1.20
• Pohuat @ RM1.40
• United Plantation @ RM15.00

PACKAGING

Both BPPLAS and ThongGuan had released their Q4 results. Stellar performance but share price does not appreciated much. ThongGuan on the other hand drop due to resin price concern as Crude Oil already more than USD100 per barrel. I am not too concern as both companies are financially stable and will be able to pass on the resin cost to customers.

 

FURNITURE

Generally flat across the board. I added Pohuat as the company has successfully back to profit again from both Malaysia and Vietnam operations. The company has annouced 2 cents dividen. It will take at least 2-3 quarters before the price move up again. Hence this is good time to add Pohuat shares.

PLANTATION

My best earning in first quarter 2022 is from plantation. I added United Plantation for its stable dividen income (more than 7%) which ex-date is in April. The CPO price is still very high @ RM6000 per tonne due to supply shortage and Ukrain-Russia war. There is still room for share price appreciation as average CPO price last year was around RM5,000 for most plantation companies.

OTHER

SamChem and CSC Steel perform well. CSC Steel has appreciated more than 20% which suprised me.

FAVCO and Kawan do not changed much. They will need some time to appreciate.

FINANCE

ELK-DESA and Takaful are still flat. RCE has appreciated a bit. The dividen for ELK-DESA and RCE will come soon.

United Plantation - Sustainable Dividen?

 

Company : United Plantation – Sustainable Dividen?

Business:

Well established mid-sized plantation company with estates in Malaysia (71%) and Indonesia (29%). In Malaysia the estates are located in Perak and Selangor. In Indonesia, they are located in central Kalimantan. 90% of the estates are oil palm and remaining 10% are coconut. They have palm oil mills for their own FFB processing and oil refinery.

 

 

Fundamental:

Company has huge cash pile of RM478 million. Strong cash flow and no problem of giving dividen!

 

Revenue spike in 2021 due to high CPO price. Profit margin is pretty stable at average of 25%.

Challenges:

• Shortage of labour which affect harvesting
• Fertilizer price hike

 

Lates Q4 result:

This company does not issue Q4 result. Instead, they published annual report straight away. A bit confusing but this show how efficient they are!

 

Prospect:

The Ukraine-Russia war has an immediate effect on CPO because Ukraine and Russia are major sunflower oil producers. As a result of war, Ukraine cannot do farming and this will take at least 1 year to recover.

CPO price usually go in tandem with Crude Oil price. Due to sanction on Russia, oil price will remain high. High crude oil price will force Indonesia to curb their CPO export due to domestic demand and benefit Malaysia exporters. Complicated huh?

  

• CPO price is record high. Even at RM5,000 per tonne. Company will make huge profit. Based on their report, their average selling price is only RM3,309 due to hedging.
• Company practise hedging and therefore the risk of sudden drop of CPO will not have immediate effect on the company.
• Technical know-how to drive production efficiency. See note from their annual report.

 

CPO YIELD IS HIGHER THAN PEERS

 

 

PEERS FFB & CPO YIELD

 

 

FORWARD SALES PRICE – HEDGING

Below note explains why their CPO selling price is lower than peers.

 

Very Interesting Fact of Palm Oil Vs Soy Bean Oil

 Dividen:

Dividen policy is 70-80% payout of its profit. This is very high compare other plantation company. In fact payout ratio for 2021 is a whopping 92%!!

 

Forecast Dividen for 2022 shall be at least 115 cent which is 7.6% based on current price of RM15.

 

 Technical Analysis on Chart:

 

At time of writing, I own UTDPLT shares. Buy at your own risk.

 

Dancomech - Benefit from high CPO and Crude Oil ?

 

 

Company : Dancomech – Benefits from High Crude Oil and CPO?

 Business:

Manufacture of pumps and trading of valves, pump, gauges and recorders in oleochemical, Oil & Gas, water and wastewater and HVAC industries. This is mainly for plants maintenance purpose.

The trading division contribute 70% of the group revenue which is mainly from Oil and Gas and Oleochemical. Company also diversified to metal stamping business by acquiring MTL company in 2020 that produce tools and die.

A small cap company. It has been chosen as Asia’s 200 best under a billion company but not sure this is relevant to their actual share performance.

 

Fundamental

Company is in net cash position with clear growth of revenue. However, the CAGR-PAT is very small and profit margin is single digit at 8%.

 

 

Past 5 years revenue record show a clear trend of growth. Profit margin is declining especially in 2021. Based on their annual report, revenue growth is because of acquired metal stamping business, electronic, electrical & instrumentation. Despite revenue almost double, the profit after tax increase is very small (RM0.3 million).  

 

  

Lates Q4 result:

Q4 revenue increase and profit margin slightly improved.

 

Prospect:

• Potential benefit from high CPO and crude oil price that allows plants to spend more on maintenance.
• Revenue contribution from Metal Stamping business, Material handling Solution and E&E division are yet to reflect fully in FY 2021.

 

 Dividen:

 

Dividen payout ratio is 35% of its profit.

 

Technical Analysis on Chart:

Share price on downward trend because of the Warrant is about to expire. Hence adding more mother shares to the market. It seems like high risk and high volatile company.

 I don’t have Dancomech shares but good to monitor their performance especially profit after tax in Q1.