Heveaboard ... Only Player Exports To Japan, Sustainable Competitive Advantage

As it delivers on its earnings, this will lead to a re-rating of the stock.

It is also gaining interest among institutional investors, which CIMB Equities Research believes hold a combined 15%-20% stake.

The company’s particleboard and furniture factories is that demand from Japan and China remains robust. Its competitive manufacturing edge is not easily replicable and the barriers to entry for the Japanese market remain high.

 

No other Malaysian furniture player exports to Japan. To cope with burgeoning orders from China, HeaveaBoard is likely to reduce the sale of lower-margin E1 boards to free capacity for E0/super E0 boards.

Over the medium term, HeaveaBoard is considering line extension/expansion to increase capacity.

A potential re-rating catalyst is strong 1QFY15 results.
Its Chinese customer base is growing at a rate of 40-50% per annum and HAVE is likely to reduce its allocation for E1 boards in favour of much higher-margin E0/super E0 boards for supply to China. It is also mulling a pressing line extension or new pressing line to increase capacity to meet the strong demand from China.

Observers were impressed by HeaveaBoard’s German-made state-of-the-art equipment and control systems.

All of HeaveaBoard domestic and most of its ASEAN-based competitors are not in the E0/super E0 space as only Japanese regulatory requirements demand such boards. Given this and the very long and stringent quality due diligence process, many particleboard manufacturers prefer to sell lower-margin but higher-volume E1/E2 boards. Thus, HeaveaBoard’s competitive advantage is sustainable over the medium term.