Shares of furniture makers on the rise

Poh Huat saw a 4.4% improvement in net profit to RM11.05mil for the fourth quarter ended Oct 31, 2014.

Shares of furniture makers such as Poh Huat Resources Holdings Bhd, Homeritz Corp Bhd, Latitude Tree Holdings Bhd, and Sern Kou Resources Bhd, have been on the rise since mid-December.

On average, these shares have seen about a 40% increase, thus bringing valuations higher compared to before.

Since mid-December, Poh Huat shares had risen about 46% to RM1.86 yesterday, while Homeritz shares saw a 50% increase to RM1.12 from a 75 sen level previously.

Similarly, Latitude saw a 45% gain to RM4.60 yesterday since mid-December, while Sern Kou rose 16% to 43 sen.

As a result, the average price-earnings ratio of those stocks have climbed to about 9.8 times, when it was 7.2 times a month and a half ago, begging the question of whether furniture stocks are now overvalued.

Today, the furniture industry in Malaysia has transformed to a technologically advanced multi-billion ringgit industry, and is one of the largest exporters of furniture worldwide, of which a majority of it goes to the United States.

A market observer says the upbeat performances in share prices are a result of their predominant US dollar receivables.

Since end-August, the dollar has gained approximately 14% from RM3.14 to US$1 to around RM3.59 to US$1 as at Jan 23, 2014.

While the appreciation in the dollar may only be temporary, it remains to be seen if the recent upward movement translates into higher demand and hence higher sales for furniture makers.

While it is unclear if the stronger dollar equates to more sales, current valuation on the stocks are no longer cheap, especially amid a cyclical and competitive market.

According to Malaysia External Trade Development Corp (Matrade), global imports of furniture and bedding into the US grew 10.4% to RM80.68bil in the first six months of 2014 compared with the same period in 2013.

Wooden bedroom furniture topped the export list to the United States with RM550mil followed by other types of wooden furniture, wooden framed and upholstered furniture and furniture and parts.

The United States imported some RM1.28bil worth of furniture from Malaysia in the first six months of 2014, representing an 8.18%, compared to the same period in the previous year.

This accounted for 1.6% of the market share, according to statistics released by the US Department of Commerce.

Poh Huat saw a 4.4% improvement in net profit to RM11.05mil for the fourth quarter ended Oct 31, 2014, from RM10.58mil in the previous year. Revenue was 6.7% higher at RM108.12mil.

For the full-year, Poh Huat posted a stellar 41.9% increase in net profit to RM23.8mil against RM16.78mil in 2013, while revenue stood at RM377.17mil against RM357.97mil a year ago. The group says its Malaysian operations continue to record strong shipment of office furniture to the Canadian market while its Vietnam operations focused on home furniture to the US market.

Poh Huat says the improving US economy, and falling oil and commodity prices will likely translate to higher disposable income and hence, and increase in spending among US consumers. “There is a consensus among industry participants that demand for furniture in the US market will be sustained,” it said earlier.