HEVEABOARD BHD
Target Price: RM2.19
HLIB Research said the switch in consumption trend for furniture products, coupled with the declining supply of tropical log wood, bodes well for processed wood products, including particleboard and ready-to-assemble (RTA) furnitures, thanks to their competitive cost structure and pricing.
HeveaBoard’s niche position as a premium particleboard maker will continue to benefit from the rising demand for premium particleboards arising from increasing awareness on environmentally friendlier products.
The company is in the midst of setting up a new RTA manufacturing plant with additional capital expenditures of RM33.5mil, HLIB said.
“The new RTA plant will diversify its RTA furniture product range to veneer-based furniture products, which is expected to command better profitability,” HLIB said.
The research house noted that HeveaBoard has all its costs denominated in ringgit while approximately 92% of the company’s revenues are denominated in the US dollar, making the company a beneficiary of the strong dollar.
“In our forecasts, we project DPS of 7.0-9.1 sen in the financial year 2017-2019 (assuming a 40% payout), translating to decent dividend yields of 5.3%-6.9% per year in FY17-19.
It noted also that there is potential upside from new business ventures, such as cultivation, packing, distribution and trading of gourmet fungi and agro products by utilising current by-products as substrate.
HLIB Research projects FY17-18 net profit to increase by 16%-39% to RM93.9mil and RM112.5mil respectively, largely to account for higher average selling prices and profit margin assumptions.
“We like HeveaBoard due to its healthy and strong balance sheet (which turned net cash in FY15), high dividend payout (dividend policy of not less than 30%), and it’s ongoing efforts to create higher margin products,” it said.
“We initiate coverage on HeveaBoard with a buy recommendation and a target price of RM2.19 based on a 11 times FY18 fully-diluted earning per share of 19.8 sen,” the research house added.