KUALA LUMPUR: Johor-based Dominant Enterprise Bhd is pursuing aggressive expansion into Southeast Asian markets. It is in search of growth to help offset the slowdown in the local property sector. The manufacturer of flat laminated wood products and moulded wood components expects to feel the full impact of the recent slowdown in property launches in 2017 and 2018 revenues because there is typically a lag effect of two years or more, said deputy managing director Danny Owee Geok Choon.
“With fewer properties being completed by then, spending on furniture and other home-related goods will also be less,” he told The Edge Financial Daily in an interview.
“That’s why we are eyeing higher exports to Southeast Asian markets in the current financial year ending March 31, 2015 [FY15], both in our existing markets of Thailand, Indonesia and the Philippines as well as new markets,” he said.
Exports made up 14% of the group’s revenue in FY14, but it is targeting a 20% contribution from exports in three years. Dominant set up a subsidiary, Favor Woodpanel (Thailand) Co Ltd, in July last year. Owee said the group is looking to recruit local sales representatives in the Philippines and Indonesia with plans to set up subsidiaries in those markets in the future.
Still, Dominant’s revenue from the Thai market this year has fallen short of its target of RM1 million per month, against RM500,000 to RM600,000 monthly, due to the political tension in the country. Nevertheless, Owee is upbeat on the group’s prospects in Southeast Asia in FY15 on the back of scarcer thus costlier supply of logs.
He is confident furniture makers will switch to engineered wood instead of solid wood. Owee noted that countries such as Russia have started imposing heavy duties on raw log exports, with Myanmar banning such exports in recent years.
“There will be more incentives for users to switch to using engineered wood,” he said.
Owee said the group is on track to achieve 10% revenue growth in FY15. “Hopefully, we can breach the RM500 million mark [in FY15].”
Revenue grew 14.78% to RM477.73 million in FY14 from RM416.23 million the previous year.
For its first quarter ended June 30, 2014 (1QFY15), the group posted a net profit of RM5.09 million, an increase of 37.14% from RM3.71 million a year ago. Revenue was 22.08% higher at RM134.07 million compared with RM109.82 million in 1QFY14.
Owee said the gross profit margin in its manufacturing division in 1QFY15 was at 10%, while its distribution division fetched a 5% gross profit margin. He also noted that for its newly developed products, the profit margin was much higher at 15% to 20%.
Dominant is projecting a 36% increase in its monthly consumption of panels to 45,000 cu m by FY17, from 33,000 cu m currently, driven by its planned capacity expansion.
Dominant operates factories in Kempas and Muar (Johor), Sungai Buloh (Selangor), Bukit Mertajam (Penang) and Ho Chi Minh City (Vietnam), and is building two new factories in Bukit Mertajam, Penang and Dengkil, Selangor. Owee said the new factory in Penang, which is slated to start operating in 2016, will increase Dominant’s production and warehouse capacity by 30%.
The group will also invest RM20 million to build a new factory on a 4ha plot of land in Dengkil. Upon the targeted completion in 2018, the existing Sungai Buloh operations will be moved to the new building.
Owee expects the goods and services tax to push up raw material prices by 3% to 5%, but the group will pass on the costs to its buyers.
This article first appeared in The Edge Financial Daily, on October 23, 2014.