PETALING JAYA: Wood panel products maker Evergreen Fibreboard Bhd is adding particleboard manufacturing capacity to its plant, targeting demand for the raw material widely used in lower end furniture.
The expansion, according to a top company official, will complement the company’s existing medium-density fibreboard (MDF) products. “A major project would be the completion of the upgrading and revamp of our particleboard plant,” group corporate controller Martin Leong told StarBiz.
“This will complement our existing medium-density fibreboards (MDF) products and give us access to a growing market currently facing supply shortages,” he added.
Another critical component coming online in 2017 for the company is the addition of a second automated production line for its ready-to-assemble (RTA) furniture products.
“Our group’s long-term direction is to diversify away from principally relying on sales of raw MDF boards by going downstream via value-adding and product differentiation. As our furniture offerings are made of panel boards, the completion of the particleboard plant will complement our efforts to expand our downstream ambitions as one of the major raw materials for our furniture products is particleboard,” he said.
Evergreen’s in-house production of intermediate products including the glue, MDF boards and particleboards gives rise to Evergreen’s position of being a true integrated producer from raw boards to boards with overlay and RTA furniture sets.
The projects, when completed, will strengthen Evergreen’s core competencies as well as complement and generate new but related income streams.
Leong said most of the investment costs for the expansion projects had already been accounted for in FY15 and FY16.
“We expect a capex budget of no more than RM50mil for FY17. We think there could be a slight improvement in our financial results this year compared with the previous year, as our expansion projects will start to kick-in in the second half of the year,” he said.
In the latest reported fourth quarter ended Dec 31, Evergreen Fibreboard posted a slight 9.73% decline year-on-year (yoy) in its net profit to RM17.48mil while revenue was rather flattish at RM262.79mil.
Basic earnings per share in the fourth quarter was at 2.11 sen against 3.74 sen a year ago. Its debt to equity ratio stood at 0.04 times against total cash holdings at RM160.31 on Dec 31.
The company is mainly an exporter to overseas markets and is also a beneficiary of the strong US dollar presently.
Leong said the company’s two main export regions are South-East Asia and the Middle East.
“As we export more than we sell locally, a strong US dollar will have a positive effect on our topline and bottomline performance,” he says.
A strong dollar also helps alleviate some of its pressures on raw material costs which have been rising, the company says.
“As our main product offering is currently MDF boards, one of the major raw materials is rubber wood logs. We have seen an increase in rubber wood prices compared to 2016. This is partially due to the rise in rubber latex prices but the effect is exacerbated by the longer than usual monsoon season,” he says.
“The heavier than usual rain made for more difficult access to rubber wood logs from rubber plantations. Depending on weather conditions, we expect the prices to remain high for the remainder of 2017,” he adds.
The second major raw material for Evergreen Fibreboard is glue and while the company manufactures its own glue, it still has to source the primary raw materials of urea and methanol.
“These two are petroleum-derived products and the increasing price of oil in the international market has also pushed prices for urea and methanol higher when compared to 2016,” Leong says.
“The strong dollar has alleviated some of the pressure of rising raw material prices. The market for MDF remains competitive but with better product offering and improving global trade prospects, we are able to maintain our market share,” he adds.
Moving forward, Leong says the company will be in a stronger position to weather headwinds such as rising raw material prices as it will have new sources of revenue that will kick in.
“The expansion plans with the coming online of new revenue streams: the particleboard and more RTA furniture capacities will help us. The current strong US dollar is a welcomed bonus,” he says.