Maintain neutral: Over the years, exports of furniture products have contributed significantly to Malaysia's total exports. In 2009, exports of Malaysian furniture products were valued at RM7.8 billion or 1.8% of total exports, at the same time achieving a commendable compound annual growth rate (CAGR) of 19.2% (from 1998 till 2009).
According to the Malaysian Industrial Development Authority (Mida), Malaysia exports to more than 160 countries with the main destinations being the US, Japan and Australia. Currently, Malaysia ranks as the 10th largest exporter of furniture in the world and second in Asia after China.
But as a global furniture player, Malaysia's market share is still very small. According to an independent market research report by Frost and Sullivan, the market size for global furniture was approximately US$302 billion (RM970 billion) in 2008. This would mean that Malaysia held approximately 1% of the global furniture industry market share in 2008 (based on the export furniture value for Malaysia worth RM9 billion in 2008).
Jaycorp Bhd is an integrated furniture manufacturer that is involved in: (1) upstream activities, which include sourcing of rubberwood, pressure treatment and kiln drying; (2) downstream activities - furniture manufacturing (mainly dining sets); and (3) packaging of materials. For 1HFY07/10, approximately 88.2% of its sales product mix was from furniture manufacturing. More than 75% of Jaycorp's 1HFY10 revenue is generated from its exports, where the key markets are the US, Europe and Australia.
Latitude Tree Holdings Bhd has carved out a strong niche in the household furniture segment, specifically dining and bedroom sets, and today the group has made great advances to position itself as one of the largest rubberwood furniture manufacturer and exporter in Malaysia and Vietnam.
We value both Jaycorp and Latitude based on seven times FY10 earnings per share (EPS), which is at 40% discount to our manufacturing sector price-earnings ratio (PER) of 12.2 times FY10. This suggests a fair value of RM1.20 for Jaycorp and RM3.85 for Latitude respectively.
Risks to our view include fluctuations in raw material prices; and a weaker US dollar against the ringgit.- RHB Research Institute, April 22
This article appeared in The Edge Financial Daily, April 23, 2010.