KLANG: Furniture maker Latitude Tree Bhd expects revenue from its Vietnam operations to grow by 10% to 20% this year, while its Malaysian business is expected to grow by 10%, on the back of slowing competition from China, said its executive director Lin Tzu Keng. Speaking to The Edge Financial Daily recently, Lin said Chinese exports, especially to the United States, were slowing as China shifted its focus to catering for growing domestic demand. Latitude Tree produces wooden bedroom, living and dining room sets for the export market. Some 90% of its products are sold in the US and the remaining 10% in Europe and the Middle East. Lin said its Vietnam and Malaysian operations would also benefit from negatives affecting Chinese furniture makers such as anti-dumping duties imposed on their bedroom sets in the US, import duties and rising labour costs. “In 2008, a lot of factories in China closed down which reduced capacity, but in May 2009 we saw orders come back and we worked to replenish our inventory,” he said. “To date, orders are still good with around US$11 million (RM35.86 million) a month. Demand and orders for our products are still strong.” Lin clarified that this was not pent-up demand returning, but merely a stock replenishing exercise. “The US economy is still quite weak, but we expect it to recover in a year or two, so we are preparing for a full recovery.” For the first half ended Dec 31, 2009, Latitude Tree posted a cumulative net profit of RM22.57 million compared with RM6.08 million a year earlier. Its revenue rose 18.1% to RM262.03 million from RM221.9 million while earnings per share stood at 34.83 sen from 9.35 sen previously. The company’s Vietnamese operations contributed 68.3% or RM192.45 million in total revenue, while Malaysia contributed 27.2% or RM76.63 million for the same six-month period. Its Thai operations contributed 4.6% or RM12.89 million in total revenue for the period.The group has six factories — three in Malaysia, two in Vietnam and one in Thailand. In Malaysia, it has upstream operations in Terengganu while its downstream operations are located in Selangor. Its operations in Vietnam are both downstream, while that in Thailand is upstream. Lin said currently, the company’s factories in Vietnam were operating at full capacity. He said the Vietnam plants were running at US$9 million in sales per month while its Malaysian plant was running at US$3.5 million. “We are in the process of setting up a new production line to increase capacity by another US$2 million a month in Vietnam by January 2011 at a cost of around US$7 million,” said Lin, adding there were no plans to increase its capacity in Malaysia as it was already operating at optimum levels. “We have two factories in Vietnam measuring 25 acres and 80 acres, respectively. The new production line will be set up at the 80-acre plant; after we set up the new line, we will still have 10 hectares left for further expansion,” he said. Lin explained that Latitude Tree’s Vietnamese operations produces medium-density composite, tropical hardwood and plywood furniture, while its Malaysian operations makes solid rubberwood furniture. He said although its Vietnamese plants contributed more revenue, the company intended to maintain its Malaysian operations due to its strategic location between source countries for rubberwood — Thailand and Indonesia — as well as the availability of other locally-sourced raw materials. In terms of capital expenditure, Lin said the company spent about US$5 million annually on machinery and maintenance, using internally generated funds and some borrowings. Lin said demand for Latitude Tree’s medium- to high-end dining and bedroom sets remained resilient despite the current state of the global economy. “We are selling consumer-based products and not timber. No matter what the economic conditions, people will still be moving out of home and starting families, so our product is a basic need,” he said, adding that in the US, home owners replaced their dining sets every two to five years, unlike many Asians who kept their sets for 10 years or more. Latitude Tree’s main customers in the US include JC Penney, Ashley Furniture, RiversEdge Furniture, Broyhill Furniture and Embassy International. “The US market is a market of upgraders, and their furniture market also has good second-hand value. Additionally, costs of moving and logistics are more expensive, so if they move, they prefer to sell their set to the incoming home owners and buy a new set,” Lin said. “Used furniture is also sometimes reconditioned and sold to Mexico and South America as there is good demand for it.” Lin said an average seven-piece dining set sold for above US$300 while a five-piece bedroom set sold for above US$350. As for factors that could affect Latitude Tree’s business in the year ahead, Lin said in the short-term, the strengthening ringgit against the US dollar could affect its earnings while in Vietnam, increasing logistics costs were a threat, although they were “still manageable”. He said increasing selling prices on the back of rising cost of materials may not work as some buyers were hesitant to lock in orders. “We used to get orders up to one year in advance, but now it is only about three to six months in advance,” he said. This article appeared in The Edge Financial Daily, May 10, 2010.