AM Research: Furniture exporters have big price advantage in US

PETALING JAYA: The furniture industry appears to be a clear winner from the ongoing trade war between the US and China, said a research house.

AMInvestment Bank Research (AM Research) in its report yesterday said that furniture exports from Malaysia are spared the tariffs, which translates into a tremendous price advantage for Malaysian furniture exporters in the US market compared to operators from China.

The US Commerce Department first slapped a 10% tariff on furniture imports from China in Sept 2018.

The tariff has since been raised to 25% will further be increased to 30% from Dec 2019.

Despite the improved outlook for Malaysian furniture makers, AM Research said that their share prices have not risen as they should have.AM Research said in its non-rated report that its estimates show that key Malaysian furniture companies now trade at 7–8 times their forward earnings, which is rather consistent with their average historical forward price to earnings valuations (PEV).

“Given the positive structural change driven by the trade diversion from the US-China trade war, we believe that their valuations should be re-rated eight to 10 times PEV higher, ” AM Research said.

AM Research which had made company visits to several furniture companies said it found out that they have indeed benefited from the trade diversion from the ongoing US-China trade war.

“They have seen increased orders, at both their operations in Malaysia and Vietnam (for those who have expanded their operations to Vietnam). We project furniture exports from Malaysia will grow by 6.1% to US$2.7bil (RM11.3bil) in 2019, accelerating from a 3.1% growth rate registered in 2018, ” it added.

It noted that Poh Huat Resources Bhd has guided for its sales to the US from its Malaysian operations to increase by another 30% in the financial year 2019 (FY19), after surging by a third in FY18.

“We understand that Poh Huat Resources had spent close to RM20mil in capex for its Malaysian operations over the last 24 months, which is 4 times the amount it spent in FY16–FY17, ” it said.

Meanwhile, Homeritz Corp Bhd which is relatively new to the US market, has signed on eight new US customers so far in 2019, AM Research said.