30 April 2012

HeveaBoard Berhad (Hevea, 5095) : Introduction and Background Study

In this post, I am going to share my homework about HeveaBoard (Hevea, 5095). Still different strategy I use to evaluate Hevea Board since Hevea made a Restructuring Schemeunder Section 176 of the Companies Act 1965 pursuant to the Court Order dated 14 December 2009 to overcome the unprecedented drastic fluctuation in currency exchange rates against the USDollars at the end of 2008/early 2009. Therefore, as you can see from the table below, Hevea only managed to earn 1sen in the financial year 2008 and its market price reached less than 20sen only.

Past 5 Years Achievement (2006~2010)



After a rebounce of profit (> 20sen per share) at the end of financial year 2009, Hevea market price went back to average around RM0.60 only. Or with PE less than 0.60/20 = 3 only!!!

The increase of market price around march 2011 was due to the announce about an acquisition proposal as stated below:
"On 8 March 2011 the Company announced its intent to consider the acquisition proposal for the
particleboard manufacturing assets of the Company by an interested party. The preliminary due diligence exercise was carried out after payment of a refundable earnest deposit. The proposed acquisition was discontinued after certain conditions were imposed by the Company due to the request for time extension of the preliminary due diligence. The conditions comprised the revised acquisition consideration of the Assets and payment of disbursement to defray the
cost incurred by the Company in the event that the proposed acquisition was not consummated
.
" (Annual Report 2010)

Based on the annual report of financial year 2010:
The marketing strategy of Hevea is to enter China market with total 50% of HeveaBoard particleboard export volume, which seems quite successful now.

"Our marketing efforts and strategies of promoting HeveaBoard Brand of quality particleboard to the high-end domestic market in China for the past two years have proven to be successful and rewarding. The tie-up between HeveaBoard and an exclusive local partner in the distribution of HeveaBoard Brand of quality particleboard in the Chinese domestic market is a great success. The product quality and the physical properties of HeveaBoard Brand of particleboard had been tested and approved by a number of Quality Standard Certification Institutions in China. HeveaBoard products are well accepted by many leading furniture manufacturers in China who value top quality products and supply stability enshrined by HeveaBoard and its local partnership. 50% of HeveaBoard particleboard export volume will be allocated to China whereas the balance will be
supplied to the traditional customers in India, Indonesia, Korea, Japan and other countries.

HeveaPac has positioned itself for expansion by further automation to meet the additional volume
demand of its RTA furniture while maintaining its current 1,600 workers workforce. The RTA furniture orders are increasingly driven by the reconstruction needs after the severe flooding in Australia and tsunami in Japan recently
.
" (Annual report 2010)

Obviously, the core sections of Hevea Board Berhad are:
1. Particleboard manufacturing sector
2. The Ready to Assemble (“RTA”) furniture sector

However, based on the annual report 2010:
"The Group is organised into 3 main business segments as follows:-
(i) Manufacturing segment – involved in the business of manufacturing particleboards and manufacturing of ready-to-assemble furniture;
(ii) Trading segment – involved in the trading of particleboards and other panel boards; and
(iii) Others
"

So, how can we analysis the profit of Particleboard manufacturing sector and Ready to Assemble (“RTA”) furniture sector, and which one has better profitability? In addtion, is it significant for HeveaBoard to export 50% of its particle board to China market? These two questions will be discussed further in the coming post.


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Written by: Xaivier Chia

P/S: The above sharing is solely based on personal insight and information that believed to be reliable. Your valuable feedback are very welcome.


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