HeveaBoard Q3 results exceed expectations

Raw materials for the making of the particle-boards at the HeveaBoard's plant..

KUALA LUMPUR: JF Apex Research has raised its target price for Heveaboard Bhd to 64 sen from 42 sen after the particleboard manufacturer returned to profitability.

This was despite the still-fluid outlook for the group’s business amid a new round of global lockdown following the spike in Covid-19 cases.

“We maintain a ‘hold’ call on HeveaBoard with a higher target price. Our revised target price is now pegged at price-to-earnings (PE) ratio of multiple of 18 times based on 2021 forecast earnings per share, which is at its five-year upcycle PE, ” the research house said.

For its third quarter ended Sept 30,2020, HeveaBoard Bhd posted a strong turnaround with a net profit of RM8.2mil from a net loss of RM4.5mil in second quarter 2020, mainly underpinned by its ready-to-assemble (RTA) furniture and particleboard segments.

For the cumulative nine months, the group’s net profit was down 16.4% year-on-year to RM5.6mil.

JF Apex Research noted that the third quarter results were above expectations as the group performed strongly in the fourth quarter although the nine-month results accounted for 64% of its full-year earnings forecast.

“As expected, HeveaBoard managed to pull out from losses in the immediate preceding quarter mainly due to the lifting of the movement control order, which allowed the group to operate back to the normalcy, ” the research house added.

Moving forward, JF Apex Research expects the RTA Furniture segment to benefit from “pent-up demand, stocking up activities and work-from-home arrangements as a result of disruption of supply chain and global lockdown”.

It also pointed out that rising export sales and higher profit margin boosted the RTA furniture segment.

Meanwhile, the particleboard segment has improved from local and export sales with the overcapacity issue from Thailand and China and US-China trade war subsiding.

Following the upward revision of HeveaBoard’s segmental margins for both RTA furniture and particleboard segments, JF Apex Research has raised its net earnings forecast for 2020 and 2021 by 36.4% and 21.7%, respectively, to RM12mil and RM20.2mil.

Besides that, the research house predicted the average selling price for RTA furniture and particleboard to trend downwards with higher local and internal sales, coupled with weakening of US dollar against the ringgit during the second half.

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