‘HeveaBoard can face headwinds with resilient business model’

KUALA LUMPUR: HeveaBoard Bhd has a resilient business model that can cope with the current unfavourable economic landscape, based on its recent quarterly results.

JF Apex Research said while HeveaBoard was a net beneficiary of US dollar appreciation with more than 90 per cent of its revenue being US dollar-based, its strategy of selling premium products with higher average price and strong pricing power following the shortage of rubberwood could cushion the impact of margin compression.

Moreover, HeveaBoard has the flexibility of adjusting product prices to factor in the currency fluctuations with receiving orders of three to four months in advance.

“We expect the ringgit to stabilise at the current level of RM4.20 to RM4.30 in the second half of this year until next year. Hence, it shall not pose any major threat to the group.

“Sensitivity analysis indicates that every one per cent strengthening of the ringgit against the US dollar would reduce the group’s earnings by 6.6 per cent this year and next year,” it said.

For the first quarter ended March 31, HeveaBoard’s net profit grew 24.6 per cent on the back of 8.8 per cent rise in revenue.

JF Apex said it envisaged the group’s core net earnings to continue its growth trajectory this year and next year, mainly underpinned by continued growth of sales in ready-to-assemble (RTA) furniture, ongoing efforts in selling high-margin particleboards, and high value-added and wide range of RTA furniture.

“Besides, HeveaBoard commands a healthy balance sheet, with current net cash per share of 18 sen, which allows it to have ample flexibility to gear up for future capacity expansion and mergers and acquisitions should any opportunities arise,” it said.

JF Apex has a “buy” call and a target price of RM2.12 for HeveaBoard.