KUCHING: Analysts continue to see near term headwinds for HeveaBoard Bhd (HeveaBoard) as positive demand outlook, witnessed by the group’s healthy order book of three to four months, will be hampered by rising and volatile raw material costs as well as persistent labour shortfall.
The research arm of Hong Leong Investment Bank Bhd (HLIB Research) gathered that for HeveaBoard’s RTA segment, it was closed since June 1 and was only allowed to operate towards end of August. This meant it was operating for only one month in the third quarter of 2021 (3Q21).
“In September, it was only able to achieve circa 70 per cent of normal output level as it was facing supply disruption issues for certain parts of the raw material components,” HLIB Research noted.
Meanwhile, HLIB Research highlighted that in July and August, the particleboard segment was only able to run at a limited capacity utilisation due to rubber wood supply disruption as saw mill was not operating during the period.
“To circumvent the situation, HeveaBoard sourced its rubber wood directly from the plantation (which costs circa 30 per cent higher vis-à-vis rubber wood purchased from saw mill (as HeveaBoard had to purchase the whole rubber wood tree from the plantation versus only offcuts and slabs from sawmill).
“HeveaBoard guided that it was able to passed on most of this higher cost to customers as it is selling to its regular customers that allowed it to fetch higher average selling prices (ASPs) and HeveaBoard was selective by only selling higher margin particleboards.
“The rubber wood supply from sawmill normalised in Sept, thus bringing down the average rubber wood cost for HeveaBoard from September onwards.
“Resin cost on the other hand has been highly volatile since September due to rising crude oil price, freight cost increase and power outage in China (which caused resin price and supply from China to be highly unstable).”
The research arm noted that HeveaBoard sourced the group’s resin from a mix of local and China suppliers.
As for the group’s fungi cultivation segment, HLIB Research gathered that sales declined in 2Q21 and 3Q21 mainly impacted by the lower sales to restaurants as dine-ins at restaurants were not allowed during National Recovery Plan (NRP) Phase 1.
“We understand that sales to both restaurants and hypermarkets started picking up since September as lockdown restrictions eased.
“Current capacity utilisation for this segment is at 30 to 40 per cent, with plenty of spare capacity to scale up supply once the demand on this segment pick up.
“As HeveaBoard had resolved most of the teething issues from this segment, we expect that this segment should start contributing positively to its bottom line in financial year 2022 (FY22).”
The research arm believed the sales growth for this segment will be supported by the group’s ongoing marketing efforts as well as the market growing appetite for healthy food options.
“Going forward, we continue to see near term headwinds for HeveaBoard as positive demand outlook (witnessed by its healthy order book of three to four months) will be hampered by rising and volatile raw material costs as well as persistent labour shortfall (number of labours were down circa 14 per cent from pre-Covid levels).
“Nonetheless, we commend the group’s ongoing efforts to automate its production processes which will improve its operational efficiency, reduce operating cost as well as its reliance on labour.”