HeveaBoard, Outlook Remains Positive After Commendable Quarter: HLIB Research

Hevea recorded 1Q22 core net profit of RM4.8m, which was deemed within expectation as there is an expectation of further earnings improvements in the coming quarters supported by the current strong USD/MYR exchange rate as well as the sustained strong demand for its particleboards from the Japanese market. Nonetheless, HLIB Research is cognizant of the uncertainties surrounding its raw material costs as well as lingering supply chain issues which pose downside risks to earnings forecasts.

The Research firm maintains a BUY call with an unchanged Target Price of RM0.63 pegged to P/B multiple of 0.85x based on mid-FY23 BVPS of RM0.74. In addition, HLIB says the group also has a healthy balance sheet of NCPS of 21.1 sen, which should benefit under the current interest rate upcycle. Within expectations. Hevea recorded 1Q22 core net profit of RM4.8m (-33.3% QoQ; 1Q21: -RM1.8m) making up 17.8% of our FY22 forecast of RM27m. HLIB deems the results within expectations as it expects further earnings improvements in the coming quarters. Core PATAMI was arrived at after adjusting for foreign exchange gain of RM0.4m.

Dividend. None (1Q21: None).
QoQ. Revenue increased by 12% mainly contributed by the RTA segment (+30.8%) but partially offset by the particleboard segment (-13.7%). The decline in particleboard revenue was due to a production halt of its particleboard factory in Jan due to tight wood supply caused by floods towards the end of Dec 2021. Despite the increase in revenue, the group recorded a lower core net profit of RM4.8m (-33.3%) due to higher raw material costs as well as lower contribution from the particleboard segment which provides a better profit margin compared to the RTA segment. YoY. Revenue increased by 29.2% on the back of improvements in the particleboard (+20.5%) and RTA (+34.1%) segments. Despite lower sales volume in the particleboard segment due to the reasons mentioned above, the higher revenue in this segment was contributed by a better product mix that commands a higher ASP as well as a stronger USD/MYR exchange rate. Consequently, core net profit rebounded to RM4.8m from -RM1.8m SPLY.

On Outlook., Hevea is continuing on its recovery path from last financial year’s performance as it recorded commendable results this quarter despite the short closure of its particleboard plant earlier this year. Going forward, barring any unforeseen circumstances, HLIB foresees sequential improvements in the subsequent quarters mainly coming from (i) stronger USD to MYR exchange rate (2QTD: RM4.31/USD) as >90% of the group’s sales are denominated in USD while costs are mainly in MYR; (ii) sustained stronger demand for value-added boards from the Japanese market; (iii) continued scaling up in the utilization rate of its fungi cultivation segment and; (iv) potential capacity increase in the RTA segment from foreign labour intake.

Nonetheless, the Research firm is cautious about the uncertainties surrounding raw material costs as well as lingering supply chain issues which will exert pressure on the group’s profitability as Hevea typically does not adjust its selling price often.

As for Forecast, HLIB updated its model for FY21 audited accounts and introduce FY24 forecasts. Post adjustments, the FY22/23 forecasts increase by 0.7%/0.6%.

HLIB remains positive on the group’s outlook in FY22 for the reasons mentioned above. In addition, the group
has a healthy balance sheet with net cash of RM119.6m or NCPS of 21.1 sen (40.3% of its market capitalization) which should benefit under the current interest rate upcycle.

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