HeveaBoard unfazed by headwinds

> JF Apex rates particleboard maker’s shares a ‘buy’, cites its sound fundamentals and resilient business model

PETALING JAYA: Despite the recent rally, JF Apex Securities has advised investors to accumulate HeveaBoard Bhd shares as its target price has been set at RM2.12, given its sound fundamentals with a three-year compounded annual growth rate (CAGR) of 53.1% in its headline net profit from 2013 till 2016.

JF Apex has given a “buy” call on HeveaBoard in its initiation report yesterday.

Currently, HeveaBoard focuses on production of premium grade particleboards – E1, E0 and super E0 graded products with low formaldehyde emission, higher physical strength and profit margins.

Despite prevailing headwinds with the likes of rebound in the ringgit, foreign labour and rubber wood shortages in the furniture industry, JF Apex believes HeveaBoard still commands a resilient business model, which is unfazed by the current unfavourable operational atmosphere judging from the recent quarterly results.

The research house noted that the group has the flexibility of adjusting products prices to factor in the currency fluctuations with receiving orders three to four months in advance.

“Our sensitivity analysis indicate that every 1% strengthening of the ringgit against US dollar would reduce the group’s earnings by 6.6% in 2017-18,” it said.

Moving forward, JF Apex expects HeveaBoard’s core net earnings to continue its growth trajectory in 2017 and 2018, by growing a respective 23.2% to RM94.9 million and 15.4% to RM109.5 million on the back of rising topline of 9.8% and 12.7% respectively.

The group’s net profit margin is expected to remain elevated at around 16-17%, in line with its strategy of focusing on high value added and margin products coupled with increasing operational efficiency following automation and lower effective tax rate.

The positive earnings momentum is mainly underpinned by continued growth of sales in ready-toassemble (RTA) furniture especially in Japan, ongoing efforts in selling high margin particle boards, and high value added and wide range of RTA furniture.

In addition, JF Apex said 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 merger and acquisition, should any opportunities arise.