10 May 2012

HeveaBoard Berhad (Hevea, 5095) : 2011 Performance Review

Since the annual report haven't come out, this review only based on the last four quarter reports of HeveaBoard (Hevea, 5095).
Firstly, let's have a look at the activities from the four quarters as follows:

Quarter 1, 2011
"The lower PBT was due mainly to the lower USD exchange to Ringgit as more than 80% of the Group’s revenues were derived from the export market and transacted in US Dollars that had resulted in lower revenues and profit margins.
The production volume for particleboard was lowered due to short supply of wood material caused by the severe flood encountered in the early part of the year and prolong rainy season.
Prospect for the current financial yearThe Group expects the particleboard prices to improve further and RTA furniture to be stable with
increasing demand.

Quarter 2, 2011
"The profit margins of the Group were negatively affected by lower USD exchange, as more than 80% of the Group’s revenues were derived from the export sales in US Dollar, coupled with higher material and labor costs incurred by both Particleboard and the RTA furniture sectors.
The slight improvement was attributed to higher particleboard output as raw materials supplies had improved and the prolonged rainy season in the early part of the year is over.
Prospect for the current financial yearThe current business environment remains challenging but the Company expects the demand of particleboard to be stronger and selling prices to improve further offsetting the weakened US Dollars exchange rate, higher energy and material costs for the second half of this year. Currently, both Plant 1 and Plant 2 of the particleboard production are in operations. The prospect for the second half of the financial year is expected to be better."

Quarter 3, 2011
"The loss incurred in the current quarter was mainly due to the unrealized exchange loss arising from the translation of the US Dollar denominated term loan."
"The disparity in profit was due mainly to the margin erosion from the fluctuation of the USD exchange rate and translation of the USD denominated term loan. The prolonged rainy season in the early part of this year had affected the logs supply which resulted in lower production volume at the
particleboard sector. The production capacity of the RTA sector had been constrained by a shortage
of workers and this will hopefully be mitigated with the installation of the automated line by early next year."

"Prospect for the current financial yearThe current business environment remains challenging but the Company expects the demand and
selling prices of particleboard and RTA furniture to maintain at current level for this year.
The Company had on 12 October 2011 announced that a sealed copy of the order of the High Court
of Malaya sanctioning the Termination of the Restructuring Scheme pursuant to Section 176 of the Companies Act, 1965 had been lodged with the Registrar of Companies on 12 October 2011."

Quarter 4, 2011
 "...attributed mainly to the RTA furniture sector which had achieved higher revenue despite being constrained by the shortage of workers and the weakened USD exchange against the Ringgit for most part of the year...."
"The particleboard sector was also affected by the prolonged rainy season which had adversely
affected the raw materials supplies and lowered its production output."

"The improvement was due mainly to the higher revenues achieved by the RTA furniture sector as it was the peak season for its Japanese market."
"Prospect for the current financial yearThe current business environment remains challenging but the Company expects the revenue for
RTA furniture to increase in tandem with the additional production output generated from the 2 newly installed auto lines, targeted to be completed by 1st quarter 2012. For the particleboard sector, the company will continue with its R&D to produce higher value products and improve on its
manufacturing processes to achieve higher productivity."

Personal Points of View:
From this mini review, obviously, USD exchange, supply of wooden material (raw material for its manufacture), and production output are the cause which can affect the profit margin of HeveaBoard in the near future.

Currently, USD/MYR exchange rate is around historical low (around 3.0 +-), can it be further declined, nobody knows. But as long as the exchange rate maintain current level (improve is better, of course), Hevea should be able to maintain the profit in the fourth quarter 2011 (i.e. 3.22sen)

Next, since the 2 newly installed auto lines is going to be completed by 1st quarter 2012, it is expected that profit can be further increased from RTA segment.

For particleboard segment, I think we should pay attention on the development of China market. If Hevea really successfully exports its 50% particleboard output to China for premium price, I believe the gross profit margin is enough to offset the negative impact from USD/MYR exchange rate in the future.

Since the effect of natural disaster is out of human being control, the increasing of raw material store in inventories is hopefully can hedge the negative impact from this uncontrolable event in the future.

Lastly, although Hevea has successfully terminate the Restructuring Scheme*, I do not expect Hevea to give dividend in coming one or two years. It is because I believe the borrowing debt should be declined further so that the balance sheet of Hevea can be strong enough for any unexpected challeging in the futuer. However, who knows the CEO of Hevea is urge to reward its loyal shareholders like me in the next financial year due to its strong cash flow. Anyway, to be realistic, let's wait and see.

That's all for today. More fascinating articles and sharing will be updated from time to time in Xaivier Blog. So, you are welcome to subscribe our feed, look at our sitemap or simply visit our Homepage.

Written by: Xaivier Chia

*From annual report 2010:
"No dividend was declared for the financial year. Your board will review the future dividend payable when the proposed termination of the S176 Scheme is completed."


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