WITH the reopening of major economies, Heveaboard Bhd, a particleboard and ready-to-assemble (RTA) furniture maker, is seeing healthy orders from customers coming in.

       Group managing director Yoong Hau Chun says that the demand is “filling up our capacity till the end of the year and for some sectors (which it serves) until 2022”.

       The bulk of the company’s products are exported throughout the Asia-Pacific region with Japan and China being its biggest markets.

       It also has a presence in Australia, France, India, Korea and the United Kingdom, among others.

       Of these, Yoong tells StarBizWeek that the Japanese market has been rather resilient during the Covid-19 pandemic.

       The challenging business environment due to the pandemic had impacted HeveaBoard’s bottom line, but its outlook is expected to improve in the fourth quarter underpinned by positive demand from customers.

       For the third quarter (Q3) ended Sept 30, 2021, the company posted a net loss of RM3.7mil due to a longer period of factory closure because of movement restrictions and supply chain disruptions which had impacted production capacity.

       This brought the net loss for the nine-month period of financial year 2021 (FY21) to RM8.51mil.

       Revenue for Q3 stood at RM65.24mil – a decline of 41.2% year-on-year and 27.2% quarter-on-quarter (q-o-q). Notably, net loss had narrowed q-o-q, albeit marginally, because of lower operating expenses.

       Hong Leong Investment Bank (HLIB) Research, for one, anticipates the company to see a turnaround in earnings in Q4 of FY21.

       In a report yesterday, it noted that supply chain issues have improved, enabling the company to increase its production output level in the fourth quarter.

       The last quarter of the year has also seasonally been a stronger quarter due to increased orders from Japan in preparation for the Japanese New Year, adds the research firm.

       However, headwinds remain from elevated raw material costs.

       HLIB Research says that HeveaBoard’s profit margin may continue to come under pressure in the near term, as the glue cost remains very high and volatile due mainly to the increase in the urea price, while rubber wood cost may increase towards the end of the year due to the rainy season.

       Yoong contends that the challenges arising from the pandemic, especially in raw material (price) volatility, are unprecedented due to supply chain disruptions and “will take some time to consolidate”.

       On its part, he says the company has implemented and continues to take the necessary steps to mitigate the risks arising from the pandemic, including prudent management of its costs and cash flows.

       “We have been investing in equipment to streamline and automate our production processes and have differentiated ourselves through technologies and innovations,’’ adds Yoong, who has an indirect interest of 32.78% in HeveaBoard.

       According to him, the company’s ongoing efforts to automate its production processes have also lessened the reliance on labour where the installation of some new lines in 2020 had “reduced the need for manpower from 30% to 70% on certain processing lines”.

       He adds that the company has also set up a sizeable solar photovoltaic (PV) asset on the rooftop of its RTA factories under the Net-Energy Metering programme, to hedge future energy cost increase.

       This came via its acquisition of a 33% stake in Satria Megajuta Sdn Bhd, a registered solar PV investment company.

       Being a co-owner of this entity, Yoong says it could also open up possibilities in bidding for other solar projects.

       Wood-based manufacturing aside, HeveaBoard had ventured into the cultivation of king oyster mushrooms in 2018 to boost earnings.

       But this business, according to Yoong, is “still at the early stages”.

       “The pandemic acted as a catalyst for us to increase exposure through multiple distribution channels, namely, to supermarket and hypermarket chains.

       “And now, we have a presence in most major hypermarkets,” he adds.

       As dine-ins at restaurants were not allowed during phase one of the National Recovery Plan, sales of its mushroom in the second and third quarters of this year were affected.

       But since September, as lockdown restrictions eased, sales to both restaurants and hypermarkets have started picking up.

       “Our current capacity utilisation for this segment is at 30% to 40% and there is plenty of spare capacity to scale up once demand picks up.

       “We now cater for the local market, but we will be looking into exporting in the future,” he adds.

       Shares in HeveaBoard closed at 43.5 sen yesterday, giving the stock a market capitalisation of RM247mil.