Furniture makers doing well due to strong USD despite labour issues

Jan 2, 2017
Generally, furniture makers were able to weather through as the ringgit weakened against the US dollar.
Generally, furniture makers were able to weather through as the ringgit weakened against the US dollar.

Furniture makers have been performing well as their revenue and net profit continues to rise due to the stronger US dollar, despite labour issues.

The challenging environment stemmed from a lack of manpower as new measures were implemented on foreign labour.

Generally, furniture makers were able to weather through as the ringgit weakened against the US dollar.

The strong US dollar augured well with most furniture makers as export market sales were largely denominated in US dollars.

Take Homeritz Corp Bhd for example, where its sales volume declined in the financial year ended Aug 31, 2016, due to reduced manpower.

“While the shortage of foreign workers affected the group’s performance in the fourth quarter, this cost increase was cushioned by the stronger US dollar.

“The reduction of manpower stemmed from the government’s decision to temporarily freeze the intake of foreign workers for all sectors in February last year,” said Homeritz managing director Chua Fen Fatt in the group’s 2016 annual report.

Homeritz registered 7.6% higher revenue and 9.05% higher net profit of RM157.57mil and RM28.03mil for FY2016, respectively.

According to Hong Leong Investment Bank, 99% of Homeritz’s revenue is derived in US dollars while only 40% of total production cost is denominated in US dollars.

Besides that, the cost of leather, which makes up an estimated 45% of total production costs has fallen by some 20%.

“Homeritz is gradually recovering from the shortage of skilled foreign labour, which has been deterring the company from expanding its capacity despite brisk demand, given that it obtained approval to bring in 60 more foreign workers since October 2016.

“The fifth production line that will expand Homeritz’s capacity by a further 15%, is on track to commence operations by the second quarter of 2017, of which part of the new factory will be rented out to its sub-contractors,” said Hong Leong Investment Bank.

Homeritz manufactures and exports a range of upholstered home furniture, comprising leather and fabric-based sofas, dining chairs and bed frames.

Its geographical reach consists of regions like North, Central, and South America, Europe, Middle East, South Africa, Japan as well as Australasia.

As for Jaycorp Bhd, its furniture division contributed 81.9% or RM237.14mil to the group’s total FY2016 revenue of RM289.46mil.

Jaycorp Bhd executive chairman Abdul Majid Khan, in the group’s 2016 annual report, stated that the improvement was attributed to the increase in order volume from all markets due to competitive prices as the ringgit depreciated.

In addition, Jaycorp’s improving operational efficiency along with stringent cost control led to the improved earnings from the furniture division.

“Looking forward, demand for furniture will likely remain steady as global consumer sentiment improves.

“Any further devaluation in the Malaysian Ringgit will assist us in improving our price competitiveness,” said Abdul Majid.

Jaycorp, which primarily manufactures rubberwood furniture, reported a net profit of RM20.98mil for the full financial year.

Meanwhile, SYF Resources Bhd, which manufactures rubberwood furniture as well as particle board and medium-density fibreboard, found that FY2016 was a relatively quiest year for the rubberwood segment.

This was because local demand for solid rubberwood materials and components was under pressure from cheaper substitutes like particle boards, medium density fibreboard and tropical timber-based materials.

Hence, SYF Resources sought export markets, particularly in China and India for the group’s processed solid rubberwood materials segment.

SYF Resources is present in 87 countries worldwide.

For the full financial year ended July 31, 2016, the rubberwood furniture segment contributed RM218.95mil to the group’s total revenue of RM453.22mil.

The revenue for FY2016 was 43.3% higher than the previous year’s, while net profit increased by 55.45% to RM38.22mil.

SYF Resources executive chairman and CEO Ng Ah Chai said that the group will actively pursue to broaden the market reach of the traditional rubberwood segment, with some inroads being made into export markets for processed solid rubberwood timber and laminated boards.

“The board division’s expansion is progressing and will show continued growth with the medium density fibreboard plant coming on stream by mid-financial year.

“With this second plant in operations, the board division will have increased capacity and will contribute more substantially to SYF Resources’ results.

“Meanwhile, the third plant located in Rompin has commenced implementation and is targeted to be fully operational by December 2017,” said Ng in the group’s 2016 annual report. – The Star Online