Poh Huat to gain on strong orders from the US
KUCHING: Furniture makers such as Poh Huat Resources Holdings Bhd (Poh Huat) stands to gain from the ongoing trade dispute between the US and China.
This comes as the trade war is turning Malaysian furniture manufacturers more competitive versus those in China.
Poh Huat stands to benefit from this, says the team at Affin Hwang Investment Bank Bhd (AffinHwang Capital) as it has good relationships with US buyers.
In September 2018, the US levied tariffs of 10 per cent on US$200 billion worth of Chinese products, which included furniture. This tariff rate is set to increase to 25 per cent by year-end, barring a breakthrough in the trade talks between the two countries.
“The ongoing trade dispute between the US and China is turning Malaysian furniture manufacturers more competitive against those in China. This has resulted in the US buyers coming to Malaysia to source their furniture products,” AffinHwang said in a note yesterday.
“Poh Huat is benefiting from this as they already have an existing good relationship with the US, given that the US and Canada are their main export markets, contributing circa 90 per cent of the group’s total sales.
“Currently, Poh Huat’s forward orders are filled up to March-April 2019.”
This was on the back of the group updating and adjusting its product mix, mainly to meet the change in consumer preferences towards the middle and affordable products from high-end products previously.
For its Vietnam operations, where competition is intense due to the rising number of furniture manufacturers, Poh Huat has been trying to introduce more unique and differentiated furniture products that other furniture manufacturers are unable to copy -- which has helped to keep orders resilient, especially for Poh Huat’s main export markets.
To recap, Poh Huat had earlier intended to expand into Australia by setting up a warehouse and showroom.
However, the lack of a synergetic local partner prompted management to instead hold its current property portfolio for rental purposes instead.
“Currently, the group is in talks with another Australian company that sells furniture products online,” AffinHwang Capital said.
“The contribution from this venture is likely to be small for the group.
“Nevertheless, if Poh Huat manages to purchase the Australian company, we are of the view that this could be the group’s first step in tapping the Australian furniture market.
“We expect Poh Huat’s revenue to increase in FY19-20E to RM703,000 to RM713,000 from RM613 million in FY18E, mainly underpinned by higher contribution from the Malaysian operations given the increase in demand for furniture products, especially from the US.”
For Poh Huat, its manufacturing costs have increased mainly due to an increase in raw material and labour costs.
“For FY18E, we expect raw material costs for both Malaysia and Vietnam to make up about 60 per cent of total sales -- up from 56 per cent in FY17, partly due to an increase in rubberwood prices given the global shortage for it.
“Meanwhile, direct labour costs for Malaysia and Vietnam are expected to be circa 8.5 per cent and 17 per cent of total sales, respectively, from 7.8 and 16 in FY17, due to an increase in minimum wages.”