14 Dec. 2006.
HTL international had dip lower than 52 week low on that month of Nov. During the 8 Dec. there is a few block purchase on HTL shares that had cause the share price $0.90 to be a support line, that tell me the big player believe that HTL business is not that bad as what those seller thinks. This stock seen likely to have a rally in the future.
BACKGROUND
The Group is one of Singapore's largest manufacturers of leather upholstered furniture. More than 70 percent of its furniture products are exported. It was founded in 1976 by the Phua brothers as a small furniture manufacturer. In 1981, an agreement was made with G Laauser GmbH & Co, a leading German furniture manufacturer, to produce quality furniture for export. With this successful collaboration, HTL was able to tap on the design and advanced production techniques of Laauser to market its furniture internationally. The Company has entered into an agreement with Musterring AG, an internationally-reputed name in furniture and furnishings to manufacture and market furniture under the prestigious Musterring label for major cities around the world. HTL has also secured the right to offer sub-licences to retailers to distribute Musterring furniture to a number of countries worldwide.Its manufacturing facilities today include a 14,000 sq m plant in Kulai, West Malaysia, and 21,000 sq m plant in Kunshan, China, and a 44,000 sq m plant cum warehouse at Jurong, Singapore. It has sales offices in Singapore, Malaysia, China, Taiwan, Japan, Hong Kong, UK and USA. Its immediate and ultimate holding company is BEM Hldgs Pte Ltd, incorporated in Singapore.
The article from singapore local analyst.
The local analyst had rated a BUY on call on Singapore Furniture sector:
HTL International Holdings Dec 12 close: 91.5 cents
Koda Dec 12 close: 58 cents
Man Wah Holdings Dec 12 close: 44.5 cents
The furniture outsourcing trend is still relevant: The outsourcing and consolidation trends for the furniture industry in Asia are still very relevant today. The locally listed firms like HTL, Koda, and Man Wah are well positioned at the crossroads of these trends, where they offer the attractive proposition of a reliable and cost efficient manufacturer with in-house design capability.
Brushing up capabilities: the locally listed furniture plays evolving into a stronger force over the years, as they undertake initiatives that allow them to: 1) cut through the middleman, 2) move up the design value chain, 3) develop own proprietary brands, 4) build on the low cost advantage, and 5) cultivate better corporate brand visibility.
Whither Asian-based ODM furniture players? Contrary to conventional wisdom, it may believe that financially stronger and Asian-based players like Koda, HTL, and Man Wah will emerge winners in the face of a slowdown in the US furniture market. the slowdown will reinforce the fragmented international furniture retailers' need to outsource to lower cost manufacturing locations. The down cycle may, however, encourage consolidation of the suppliers, which will benefit the stronger players.
2007 will be a better year: recent checks with Koda, HTL and Man Wah show good orders flow momentum, as customers continue to secure manufacturing space allocation from them in recent trade shows. HTL and Koda have guided for higher selling prices for recent new product launches, leveraging on their upgraded design capability. Man Wah has raised the average selling prices by 3 to 5 per cent for its sofas in the PRC and Europe since early 4Q 2006. analyst expect a better outlook for the locally listed furniture stocks in 2007, in the midst of a more benign raw material cost environment.
BUY into furniture plays: like Koda, with an upgraded fair value of S$0.825, and Man Wah, with an upgraded fair value of S$0.595, for their high earnings growth momentum and surprisingly undemanding valuation as growth stocks. analyst are also positive on HTL (BUY; S$1.40), which has now turned into an attractive value play following the recent overzealous sell down of the shares. At current share prices, these stocks offer capital gains potential in the region of 38 per cent to 54 per cent.
Macro Risks
Anti-dumping Duties
China has been designated a “non-market economy” until 2015 by the World Trade Organisation. The classification of China as a non-market economy allows any trading partner to compare the prices of Chinese products with the prices in an alternative country. This will determine whether Chinese goods have been exported at unfairly low prices. In December 2004, the US imposed anti-dumping duties on exports of wooden bedroom furniture from China. Recently, Italy and Germany lobbied the European Union (“EU”) to impose anti-dumping duties on China imported furniture. If anti-dumping measures are taken by EU, or the antidumping duties are extended by the US to include leather upholstered furniture, this may affect our performance in Europe and US.
Commodity risks
Leather is the principal raw material in the Group’s upholstered furniture. As such, the cost of upholstered furniture is subject to fluctuations in price of cattle raw hide. The supply of cattle raw hide is principally dependent on the consumption of beef. The cattle industry is also exposed to veterinary health issues like foot-and-mouth and mad cow disease, which will have an impact on the slaughter rate of cattle. Significant fluctuation in the price of raw leather hides will affect operating margins.
Cyclical demand for furniture
Historically, the furniture industry has been cyclical, fluctuating with economic cycles and is sensitive to general economic conditions, housing starts, interest rate levels, credit availability and other factors that affect consumer spending habits. As most furniture purchases are discretionary in nature and may represent a significant expenditure to the average consumer, such purchases may be deferred during times of economic uncertainty. Any prolonged global economic slowdown may have an adverse effect on the Group’s operating results.
Seasonal operations
The Group’s sale of leather upholstered furniture is subject to seasonal variations given the increased contribution from the Europe and USA markets. In general, turnover will be lower from July to August (i.e. the summer months) relative to sales for other months in a calendar year. Hence, going forward, the Group can expect to experience seasonality effect which may cause short term fluctuations on the Group’s performance.
Company Risks
Foreign exchange risks
The global financial markets remain volatile. The fluctuation of foreign exchange currencies against the Singapore dollar is of particular importance. The Group transacts in multiple foreign currencies like US dollar, Japanese yen, sterling pound and the Euro. In addition, because a majority of our operations are primarily based outside of Singapore notably China and Malaysia, the recent de-pegging of RMB and RM against US Dollar has also increased our currency exposure risks in addition to the above currencies. Therefore, any significant adverse movements in the major trading currencies will have an impact on the Group’s performance. The Group monitors its foreign exchange exposure and utilises appropriate financial instruments to hedge its foreign currencies. In addition, the Group will borrow in the same currency to provide a natural hedging for balance sheet items where possible. Vulnerable to freight rate increases The Group exports more than 99% of its leather upholstery products to more than 39 countries across 4 continents and relies on shipping companies for the shipment of its products to these countries. As such, one of the costs that the Group will bear when it sells on CIF or CFR terms or where it purchases on FOB terms, is freight costs. The freight market can be volatile and changes in oil prices will also have an effect on freight rates. If freight prices are high, the Group’s business costs will increase and operating margins can be affected. The Group has no control over freight costs and therefore, it is difficult for the Group to manage its freight costs. However, the Group does factor in an appropriate amount for expected freight rate increases in the quotation of sales price to customers.
