HLIB Makes A Buy Call On Heveaboard As Its 2Q Prospects Onwards Looks Good

Hong Leong Investment Bank has maintained a “Buy’ recommendation for HeveaBoard Bhd with an unchanged TP of RM0.63 pegged to P/B multiple of 0.85x based on FY22 BVPS of RM0.72.

It said that it was positive on the group’s prospects in FY22 and believes that despite a stoppage in operations of the particleboard factory in Jan, it firmly believes that the earnings impact from this will be partially mitigated by the shipment of deferred finished goods from the previous quarter as well as the strong sales volume in its RTA segment.

HLIB said that as raw material supply has returned to a healthy level, it anticipates that Hevea should see sequential improvement from 2Q onwards. “This improvement is further bolstered by the increasing particleboard sales export to the Japanese market that fetches a better margin compared to other export markets,” it said

The investment bank said that the group also has a favourable ESG profile due to its exposure in a sustainable industry and the positive initiatives the group has taken to improve its ESG characteristics.

HLIB said that HeveaBoard shared that the particleboard’s sales volume to Japan has increased significantly since 2H21 and the Japanese market is now one of its major export markets.

It said that this increase is a result of Japanese buyers diverting their orders from Europe to the SEA region amidst increasing cost arising from European wood manufacturers having increased their ASPs substantially; and an increase in logistic costs as a result of increasing energy prices in Europe and lingering supply chain issues.

Hevea benefitted greatly from this trade diversion and was able to expand its market share in Japan, capitalizing on its vast experience and foothold in the Japanese market (its products are already in compliance with the stringent Japanese standards).

Riding on this demand increase, Hevea will be investing RM10million CAPEX to add a new short cycle line to produce value-added boards (e.g., MFC laminated boards) that will provide a higher margin compared to its raw boards.

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