Latitude Tree Holdings Berhad - Strong recovery of furniture industry?

Before we talk about Latitude Tree Holdings Berhad (LTHB), let's us understand about the furniture industry. In Bursa, we have few listed furniture companies, Lihen, LTHB, Pohuat, Homeritz and etc. As for LTHB, it exported 90% of furnitures to US and hence, the recovery of US housing market play an important role to determine on LTHB performance. There are few things that i think one should know about

1)The new home sales in US surged 9.6% in January, which is the strongest rate since July 2008. The unexpected good result had beaten the estimation of consensus. The supply of homes in relative to demand has dropped from 5.2 months(December) to 4.7 months(January) as the supply of new houses in the market remain unchanged, due to the lack of materials and unskilled workers. The potential hike on mortgage rate in US might dampen the housing market further as the borrowing cost increased.

sources from: ECONODAY

2)Despite the strong recovery of new home sales in January, the pending home sales in US showed only a marginal gain of 0.1%. The data on January has shown some stability on US housing market after the plunge of recent months. In US housing market, existing home sales constitute a higher proportion than new home sales. By looking at the data, it is understand that the housing market in US is still in a recovery stage which the sustainability has yet to know.

sources from: ECONODAY

3)The economy of a country is important to determine the income level of citizens, which will affect the housing market indirectly. In fourth quarter of 2013, US GDP grew in  2.4% annual rate, which is lower than estimation. Consumer spending plays an important part in US economy but the year end retails sales is not as good as assume. Bad weather in US is one of the causes.




4) In year 2013, US furniture import had increased 1,974 Million Dollars, as compare to year 2012. For your information, US is world major furniture import country, and China is his largest trading partner, follow by Vietnam and then Malaysia. Recently, the labor cost on China is going up, and hence it provides Vietnam and Malaysia's furniture manufacturer an opportunities to grow their market share. Despite that, Vietnam and Malaysia furniture industry are known as lacked of skilled workers, and the production cost of both countries are raising due to the implementation of minimum wages.



5) The competition in furniture industry is very intensive, especially from the China side. China is the largest furniture producer and largest furniture exporter in term of value in the world.

sources from http://www.slideshare.net/ClarionGermany/03-csil-alessandratracogna

sources from:http://www.slideshare.net/ClarionGermany/03-csil-alessandratracogna

As you can see from above chart, Vietnam and Malaysia are still a small market in the industry in term of production and exportation.




Conclusion

In my humble opinion, the furniture industry is showing sign of improving follow by the recovery of US housing market, albeit there are still a lot of uncertainties. I think that for those furniture companies which are able to survive throughout the 2008 crisis, they will enjoy a huge pie of cake, if let say US housing market come back strongly. Another issue to take note is, the orders for local furniture companies are increasing, which is a good leading indicator of US housing market recovery? Nevertheless, it is still early to judge.



Next, i will be touching on furniture companies listed in Bursa, and why my pick on LTHB.