By THE STAR
PETALING JAYA: Ekowood International Bhd is set to benefit from the growing number of high-end property developments in the country.
According to chief executive officer Tan Aik Sim, a number of prominent developers have shown interest in the company’s engineered solid hardwood flooring (EHF) products.
“A lot of our procurement will be implemented next year. We expect revenue contribution from the local market to grow faster than that from overseas,” he told StarBiz.
In the financial year ended Dec 31, 2006 (FY06), the local market contributed 17% of total sales compared with 9% in the previous year.
Furthermore, the expansion of its Ipoh plant is scheduled to be completed next month. This will add about 70% to its current capacity of 15 million sq ft.
Ekowood was confident that the extra capacity would be utilised in the next three years, Tan said.
In a report, a research house noted that EHF had continued to gain market share over traditional solid wood flooring in the overseas market. In Europe, EHF currently enjoyed over 60% share of the wood flooring market, largely due to cost competitiveness and durability, it said.
Ekowood said in its 2006 annual report that it had the largest selection of over 800 types of EHF and stood to gain from a dominant market position.
Ekowood’s projects include the Hilton Hotel Kuala Lumpur, Westin Hotel, Marriott Hotel Putrajaya, Ayuria Mont Kiara, Kiara Ville, Maple Condominium Sentul and Le Venue Desa Park City.
For the first three months ended March 31, Ekowood had shown improvement in margins.
While revenue was marginally lower at RM34.5mil compared with RM37.5mil in the previous corresponding period, pre-tax profit rose to RM5.1mil from RM4.9mil before.
This was largely due to higher cost efficiencies. Tan said by increasing automation, more cost savings could be achieved.
Ekowood also intends to increase its exposure to the Middle East countries but it will take two to three years before the market becomes exciting.
“They currently prefer to use tiles instead of wood flooring. We’re working with Middle Eastern contractors to change that,” Tan said.
A brokerage said in a report that Ekowood shares were trading at “distressed valuations” despite the anticipated compounded average growth rate of 15% in the next two years, about 16% to 18% return-on-equities and an attractive yield of over 5%.
Based on the brokerage’s forecast earnings per share of 11.5 sen for FY07 and yesterday’s closing price of 89 sen, the stock was trading at a price/earnings ratio of 7.8 times.
The research house expects future earnings to be driven by a combination of higher production and improved selling prices, which were partly aided by favourable currency movements.
In addition, the anticipated tax savings from higher sales of EkoLoc products – which have pioneer status – should further buoy earnings, it added.
Ekowood declared a dividend of 2.5 sen per share for FY06.
Tan said the company was likely to declare higher dividends in two years, as currently it still needed capital for expansion.