Poh Huat has spent close to RM20 million in capex for its Malaysian operations over the last 24 months, which is four times the amount it spent in FY16 and FY17.
KUCHING: The improved prospects of Malaysian furniture exporters in the US market on the back of the US-China trade war sound like a perfect growth story that equity investors constantly search for.
However, the uninspiring share price performance of key listed players on Bursa Malaysia tells us that the sector is still flying under the radar of investors.
AmInvestment Bank Bhd (AmInvestment Bank) said the situation was understandable given that listed furniture makers generally have small market capitalisation and share liquidity.
“We gathered from furniture companies we met up with recently that they have indeed benefited from the trade diversion from the ongoing US-China trade war,” it said in a report.
“They have seen increased orders, at both their operations in Malaysia and Vietnam (for those who have expanded their operations to Vietnam).
“In Malaysia, Poh Huat Resources Holdings Bhd (Poh Huat), for instance, has guided for its sales to the US from its Malaysian operations to increase by another 30 per cent in its financial year 2019 (FY19), after surging by a third in FY18.
“We understand that Poh Huat has spent close to RM20 million in capex for its Malaysian operations over the last 24 months, which is four times the amount it spent in FY16–17.
“Over the past few years, Poh Huat has seen higher orders from its existing customers and signed on new customers. It was also urged to expand its product range.
“Similarly, Homeritz Corporation Bhd (Homeritz), which is relatively new to the US market, has signed on eight new US customers so far in 2019.
“It is currently embarking on an expansion plan that will come onstream over the next three to five years, subject to the demand from its customers.”
AmInvestment Bank went on to project furniture exports from Malaysia to grow by 6.1 per cent to US$2.7 billion (RM11.3 billion) in 2019, accelerating from a 3.1 per cent growth rate registered in 2018.
“Key Malaysian furniture players already had a significant presence in Vietnam.
“For Latitude Tree Holdings Bhd (Latitude Tree) and Poh Huat, for instance, operations in Vietnam contributed 78 and 55 per cents of group revenues of during their just concluded financial years respectively.
“With production capacity having been fully utilised to cope with the increased orders, Latitude Tree is expanding its wooden furniture and upholstery manufacturing capacity in Vietnam by 12–35 per cent and 15–35 per cent respectively over the next 12 months.”
Also, due to the general increase in furniture prices in the US as a result of the tariff on Chinese imports, the research firm said there has been noticeable trading down by US consumers where they now go for the cheaper ready-to-assemble (RTA) panel-based furniture over the pricier fully-assembled solid wood furniture.
The younger generation in the US is also more receptive to RTA furniture, particularly for the bedroom set, as it is more practical and cost effective, it added.
“Apart from the tariff advantage over its Chinese peers, Poh Huat Resources for instance, also focuses on these more affordable products in its operations in Malaysia to strengthen its foothold in the US market.
“We are mindful of the risk of the US Department of Commerce imposing duties on Vietnamese goods to stamp out the rerouting of Chinese goods to the US via Vietnam, including furniture, to get around the tariff.
“This could completely erase the price advantage of Malaysian players in Vietnam over Chinese players.
“Already, the US Department of Commerce has slapped duties on certain steel imports from Vietnam as it concluded that they originate in South Korea and Taiwan, and only relabelled Vietnam-made after some minor processing in Vietnam.
“We project furniture exports from Vietnam to grow by 20 per cent to US$12 billion in 2019, also picking up momentum from a 16 per cent growth rate achieved in 2018.”