//Diversion from US-China trade war to spur Malaysia's furniture sector
NST Business
KUALA LUMPUR: The Malaysian furniture sector's long-term outlook is expected to be rosy, with its demand growth resuming once the global economy recovers and reverts to normalcy next year.
Public Investment Bank Bhd said furniture demand would be bolstered by trade diversion due to the US-China trade war.
"Given the low raw material prices and a favourable foreign exchange rate, we believe that profit margins could potentially improve on the back of lower raw material costs and stronger revenue in ringgit terms," PublicInvest said today.
The firm has initiated coverage on the sector with an "Overweight" recommendation.
PublicInvest also has "Outperform" recommendations on Poh Huat Resources Holdings Bhd, Homeritz Corp Bhd and Wegmans Holdings Bhd.
The firm noted that prior to Covid-19, total Malaysia furniture exports had been growing at a compounded annual growth rate of 7.6 per cent between 2014-2019 to RM11.9 billion, in tandem with the growth in the global furniture market.
In addition, Malaysian furniture manufacturers appear to be one of the preferred option as buyers from the US divert its orders from China to countries in SoutheastAsia.
According to the Malaysian Timber Council (MTC), Malaysian wooden furniture exports to US jumped by 38 per cent year-on-year in 2019 to RM4.7 billion from RM3.4 billion in 2018.
"Malaysia has always been a net furniture exporter and is ranked among the top 15 largest furniture exporters worldwide.
"In 2019, Malaysia is the 11th largest furniture exporter in the world. Around 80 per cent of Malaysia's furniture production is exported with the US, Japan and Australia being the major export markets," PublicInvest said.
It added that the Malaysian furniture industry had its advantages when it comes to product creativity as designers were able to churn out unique designs and therefore attract furniture retailers and theme decorators despite charging premium margin.
Meanwhile, PublicInvest said prices of rubberwood, a main raw material used, had fallen and stabilised since the export ban in 2017.
Given the ample supply of rubberwood as well as falling leather prices, it expects an improvement in margins due to lower raw material costs.
PublicInvest believes that exporters would likely benefit from the weak ringgit against the US dollar.
"We estimate that for every one per cent drop in the ringgit, earnings for the furniture stocks under our coverage would increase by 0.8 per cent," it said.