Lee Swee Kiat growing local market share to offset Red Sea crisis
KUCHING: AmInvestment Bank Bhd (AmInvestment Bank) maintain FY23-25 core earnings for financial years for natural latex mattress manufacturer Lee Swee Kiat Group Bhd (Lee Swee Kiat) on expectations that stronger domestic demand, especially from the wholesale segment, will counterbalance the temporary decline in export sales.
This comes as Lee Swee Kiat’s export segment has been sluggish since FY22 amid weakening global economic growth due to high inflation and tightening monetary climate.
“Consequently, FY22-2QFY23 plant utilisation rate (PU) of the two latex foam plants was only at 45 to 50 per cent, substantively lower than 78 to 79 per cent in FY19-21,” AmInvestment Bank said in its notes.
To note, Lee Swee Kiat registered an improvement in 3QFY23 with PU of 60 per cent due to recovery in demand from the European markets and trade diversions away from China.
Going into October and November of 2023, Lee Swee Kiat noted that the recovery momentum persisted.
However, it observed that some export order delays in December 2023 due to the Red Sea crisis. On a positive note, export orders in 1QFY24 could be supported by new orders from Australia.
“As a result, we trimmed FY23F utilisation rate to 54 per cent from 58 per cent previously, mainly to account for lower PU assumption of 65 per cent in 4QFY23 from 80 per cent previously.
“We believe most of the Red Sea impact in 4QFY23 occurred in late-Dec 2023. For FY24F, we maintain our PU assumption.
“On the domestic front, the robust demand in 4QFY23 will be well supported by the wholesale segment, underpinned by gaining market share from Lee Swee Kiat’s peers thanks to its reputable brands at reasonable pricing without compromising on quality.”