Analysts: Mieco set to benefit from high plywood prices


THINGS seem to be going well for particleboard maker Mieco Chipboard Bhd.  

Besides a healthy and increasing demand for its products, Mieco's bottomline is also expected to be boosted by higher plywood prices. 

JP Morgan Malaysia analyst Patrick Tiah said in a recent report that Mieco was benefiting from higher plywood prices as it increased the attractiveness of particleboard, a lower cost substitute.  

“Plywood prices have been on the increase, up 15% to 20% since the start of 2004 and this has given Mieco room to raise its selling prices,” he said.  

However, Tiah said that despite the price increase, the company was expecting margins to remain stable for the year ending Dec 31, 2004 as production costs had also increased, particularly due to higher glue (35% of costs) and raw wood (16% of costs) prices.  

Datuk Yong Seng Yeow

“We believe this is conservative and expect Mieco to post a net margin expansion as production costs have only increased by about 7% to 12%,” he said, adding that if plywood prices continued to rise, Mieco would have even more pricing power.  

Another plus point for Mieco is the current weak US dollar.  

ASM Asset Management Sdn Bhd analyst Fadzlan Sufian believes the depreciating US dollar will be a boon for the company.  

He said it would make goods from Meico competitors, among them the Vanachai Group of Thailand, more expensive in the export markets as a result of the appreciation of regional currencies.  

“Mieco's products will also be cheaper in the eyes of its customers’ especially those from Europe because of the depreciating ringgit,” he said. 

Mieco executive director Datuk Yong Seng Yeow said the prospects for the company going forward was good especially since usage of particleboard wood panels was expected to continue to rise. 

“The particleboard industry is expected to grow steadily in the years to come given the rising global concerns about the environment,” he said. 

He added that particleboards were more environmentally-friendly as its raw materials consist of rubber-wood slabs, forest residue from lumbering, chipping and saw dust. 

Yong said Mieco had a two-pronged business plan for this year. 

“Our main focus is to maintain our current business and two existing plants. We want to optimise our earnings by having a good product mix, which will include the manufacture of higher value-added products. 

“The second focus will be on the commissioning of our new plant in Kechau Tui in Kuala Lipis, Pahang. We expect to start commercial production next year,,” he said. 

Yong said with the new RM300mil plant, Mieco's total production capacity would be boosted from the current 300,000 cubic metres (cu m) per annum to 940,000 cu m, of which 60% would be for export and the balance 40% for the domestic market. 

Mieco exports its products to China, South-East Asia and other export markets. 

Yong said the new plant was currently under construction and expected to be completed by September. 

“The first shipment of machines should arrive by early May. We will install the machines in June and begin trial runs in November,” he said. 

Yong said the new plant was expected to boost the company's revenue by RM110mil in 2005. 

“The plant is expected to generate a revenue of RM230mil per annum once it is operating at full capacity in 2007 and 2008,” he said. 

Besides increased capacity, Mieco's alliance with Kunz Holdings GmbH & Co of Germany will ensure the new plant's access to technological advancement in the production of higher quality and value-added goods. 

JP Morgan has adjusted upwards its earnings per share forecasts for Mieco for FY2004 and FY2005 by 5% to 18 sen and 7% to 29 sen respectively.  

“Although the stock has outperformed the market by about 7% in the past three months, we believe there is still more upside to its share price,” Tiah said.  

Meanwhile, ASM Asset Management has rated Mieco as a growth stock, which should benefit from higher external demand given its established presence in China as well as further Government fiscal stimulus programme domestically.  

Mieco is the manufacturing division of Bandar Raya Developments Bhd.  

The company commissioned its first production line in 1976, making it the pioneer in chipboard manufacturing in Malaysia using rubber wood. 

Currently, Mieco has two factories located in Semambu and Gebeng in Kuantan, Pahang. Mieco produces plain board, decorative melamine-faced chipboard, direct post-formed board and laminate flooring.  

 Stock Watch On MIECO

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