THANKS to surging export sales to the US and a stronger greenback, local furniture makers, which were among the worst hit during the 2008 global credit crunch, have seen their share prices rise sharply over the past year.

A spokesman for Poh Huat Resources Holdings Bhd tells The Edge that shipments to the US have picked up substantially, and the situation continues to improve with the recovery of the world’s largest economy.

Poh Huat specialises in the manufacturing of dining, bedroom, office and entertainment furniture. Shipments to the US in the second half of 2013 “were consistently higher” than in the same period a year earlier, the spokesman says, adding that order backlogs were also higher.

“To meet the increased orders, we have commissioned a new line in Vietnam. We have also increased the level of production, and improved efficiency by increasing the shift hours,” he says.

Poh Huat, based in Muar, Johor, saw its fair share of challenges during the global financial crisis. Sales orders declined while the then sharp depreciation of the US dollar hurt its margins.

From a net profit of RM17.1 million in FY2007 ended Oct 31, the group saw its bottom line plunge 57.9% the following year to RM7.2 million. Revenue fell to RM387.9 million from RM409.4 million.

The group only bounced back to its FY2007 earnings level in FY2012, when it registered a net profit of RM15.2 million on revenue of RM392 million. Its net profit for FY2013 rose further to RM16.8 million, but revenue fell slightly to RM358 million as it rationalised its product offerings.

Poh Huat’s share price rose 180% from 40 sen in early 2013 to RM1.12 last Thursday, giving it a market capitalisation of RM119.53 million.

Other furniture companies have also seen their revenue and net profit increase substantially in the past year.

Latitude Tree Holdings Bhd, based in Kapar, Selangor, saw its net profit increase 147.6% to RM24.4 million or 25.07 sen a share in FY2013 ended June 30. This is despite a 4.7% dip in revenue to RM493.7 million due to the scaling down of its factory in Malaysia, as it expands in Vietnam.

Latitude saw its net profit increase 147.6% to RM24.4 million in FY2013 ended June 30

The stronger earnings were attributed to the expansion in gross margin to 14.42% from 10.33% previously, thanks to the stronger US dollar and increased sales of products with better margins.

For 1QFY2014, Latitude’s net profit increased to RM14.6 million from RM9 million in the previous corresponding period, as revenue grew to RM177.1 million from RM139.7 million.

The company’s share price increased 259.2% to RM2.45 last Thursday, from 68.2 sen in January 2013. Its market capitalisation now stands at RM238.2 million.

Meanwhile, Muar-based Lii Hen Industries Bhd has seen its share price rise from RM1.20 in May last year to close at RM1.73 last Thursday.

In FY2012 ended Dec 31, the group saw its net profit double to RM21.3 million. Nevertheless, in the nine months ended Sept 30, 2013, net profit came in lower at RM14.08 million compared with RM18.97 million in the previous corresponding period.

SWS Capital Bhd, formerly known as UDS Capital Bhd, is another furniture company that has attracted the interest of retail investors.

In the past year, its share price has increased 132.5%. It closed at a six-year high of 46.5 sen last Thursday, putting its market capitalisation at RM58.83 million.

The company saw its revenue rise 24.4% to RM32.59 million in the first quarter ended Nov 30, 2013, with net profit coming in at RM1.44 million compared with RM549,000 previously.

“It is a trend for demand to rebound after a long economic downturn,” a representative from SWS tells The Edge.

“Growth in the US will drive demand in the European markets. Coupled with the strong US dollar, Malaysian products would be relatively more competitive compared with those from other countries,” she says, citing the increased labour cost in China and the strengthening of the renminbi.

The spokesman from Poh Huat points out that Malaysia’s lower cost structure, established track record as a furniture exporter, and favourable exchange rate will benefit local manufacturers, compared with their regional peers.

Nevertheless, while the export scene looks bright, the slower pace of development in the local property sector could impact the furniture market.

The Poh Huat spokesman says the segment most affected by this would be the custom-installed and project-based orders in view of the anticipated lower occupancy rate and slowdown in new property projects.

Nevertheless, he believes that the slowdown will be moderate, as the pipeline of completed projects coming onto the market remains strong.

“Newly or soon-to-be-completed properties will require furniture and finishings, resulting in a sustained demand for furniture in the local market in the near term,” he says.

With the continued recovery of the US market as well as the greenback, local furniture makers may continue to see improvements in their earnings. That, coupled with their inexpensive valuations, would ensure that the stocks continue to attract interest, say market observers.

“With the long-awaited pick-up in global growth, we expect the global furniture trade to rise. With successive months of improving economic, employment and housing data, we expect improved demand for furniture for the US market and higher orders from our US customers,” Poh Huat says in a note accompanying its results, which were released just before the new year.
This story first appeared in The Edge Malaysia Weekly Edition, on February 17 - February 23, 2014.