Dongwha Enterprise hits record quarterly performance

An aerial view of the VRG Dongwha MDF, Dongwha Enterprise’s Vietnam plant, in BinhPhuoc Province, Vietnam.

By Park Jin-hai

Kim Hong-jin Dongwha Enterprise CEO

Dongwha Enterprise has broken another profit record in its recently disclosed third-quarter financial report, buoyed by rising demand in the local housing market and its growing Vietnam business.

Experts say that following the first quarter “earning surprise,” when the leading building materials maker posted over a 100 percent increase in operating profit year-on-year, it has been beating its own record and this pattern is expected to continue.

“Its third-quarter sales broke the record,” said Kim Yeol-mae, a senior analyst at Hyundai Securities. “The sales of all products ranging from particle boards (PB) and medium-density fiberboards (MDF) to building materials have shown growth, while its bullish Vietnam business has been contributing to the company’s overall performance as well.”

The company’s third quarter sales posted a record 175.8 billion won, up 24.3 percent year-on-year, while its operating profit rose nearly 30 percent or 20.3 billion won, according to the KOSDAQ disclosure.

The local wood materials market largely sells three kinds of wood ― PB mainly used for kitchen furniture, MDF for other furniture and plywood. Among these, PB has the highest profit margins, between 10 to 15 percent.

A part of Dongwha Group, Dongwha Enterprise currently maintains a dominant 67 percent market share in PB.

Accumulated sales up to the third quarter this year have reached 501.2 billion won, up 18.6 percent from the same period a year earlier. Its operating profit jumped 42.4 percent to 62.4 billion won, while its net profit also gained 15.2 percent or 37.7 billion won.

The operating profit and net profit of the first three quarters have already surpassed those of last year, when the company clinched its best financial report since its establishment in 1948.

Dongwha Enterprise says the strong performance stems from rising demand in the local housing market. As the company’s core products are finishing materials, its performance strengthens when the supply of new apartments nears.

The volume of new apartments to be supplied in the fourth quarter is estimated to be 83,153, up 23 percent from the previous year, according to data from the Ministry of Land, Infrastructure and Transport.

The sales prices for PB and MDF have been increasing, plateauing as of October this year. As the new apartment supply is estimated to grow, the company expects its best-yet performance this year.

“The PB sales have been our cash cow over the last two years,” said a Dongwha Enterprise official. “As the anti-dumping tariff levied on particle boards produced in Southeast Asia was lifted in 2012, we increased our eco-friendly board product portfolio, which raised our market competitiveness. The soaring demand for environmentally friendly products in the local market has led to improved sales and profits.”

Another factor propelling the company’s recent outstanding performance is its growing Vietnam business. Its Vietnam office currently maintains an operating profit percentage in the upper 30s. As Chinese furniture makers recently entered the Vietnamese market, Dongwha Enterprise has gained additional clients there.

“Thanks to the Chinese furniture companies in Vietnam, the demand for Dongwha Enterprise’s MDF will further increase there,” said Kim. “When the second plant the company is building begins operation from 2017, its production capacity will increase by more than 50 percent, pushing up its sales by a notch.”

She added that because growth is forecast for the local furniture industry and the demand for interior decorations will also rise, the company’s long-term growth is also expected.

Chae Sang-wook, an analyst at Hana Financial Investment, agrees that the company’s long-term prospects are bright. “Although the earnings from its core wood-material business have been strong, its third-quarter earnings were slightly below the market consensus, because the expense of renovating its Australian branch’s facility has been reflected as a one-time cost on the third quarter,” he said.

“Still its fundamental is robust.” He added that the company’s Vietnam business is forecast to rebound in 2017, maintaining his buy opinion, with a target price of 65,000 per share.