POHUAT: Furniture Exports Confront Tariff Headwinds, Strategic Diversification in Focus

A prominent investment bank has maintained a ‘Sell’ recommendation on a leading furniture manufacturer, citing significant challenges from new US sectoral tariffs despite the company’s efforts to diversify and potential mitigating factors. The analyst report highlights considerable headwinds that have prompted a downward revision of earnings forecasts for the coming fiscal years.

Market Challenges Intensify with New Tariffs

The US market, which accounts for over 90% of the company’s total export revenue, is expected to face further earnings pressure following the US President’s proposal for new sectoral tariffs. These measures include a 30% tariff on upholstered furniture, set to take effect on October 1, 2025. This latest imposition adds to existing reciprocal tariffs, under which Malaysian exports are subject to 19% and Vietnamese exports to 20%. The cumulative tariff burden is anticipated to increase production costs, potentially leading to higher consumer prices and subsequently softening demand. Historically, US furniture prices were already up 4.7% year-on-year by August 2025, according to the US Bureau of Labor Statistics.

Product Mix Offers Cushioning Effect

Despite the challenging environment, the company’s diversified product mix, typically split 60% office furniture and 40% home furniture, is expected to partially cushion the impact. Office furniture is believed to be excluded from the new 30% tariff, implying that the company’s Malaysian operations, which predominantly focus on office furniture, may face less downside risk compared to its Vietnamese operations. For FY24, Malaysia and Vietnam contributed approximately 63% and 37% of the group’s revenue, respectively.

Future Strategy and Opportunities

In response to market shifts and to reduce its reliance on the US, the group is actively pursuing a strategy to diversify its revenue base by expanding into other regions, including Europe, Asia, and the Middle East. Furthermore, a potential silver lining could emerge from ongoing discussions, with media reports suggesting that the US is considering granting tariff exemptions for selected Malaysian furniture items. A final decision on these exemptions could be made as early as next month, which could provide some relief to the sector.

Analyst Recommendation and Valuation

The investment bank has revised down its net profit forecasts significantly for FY25 and FY26, by 17.9% and 37.2% respectively, reflecting the intensified market challenges. Consequently, TA Securities has maintained its ‘Sell’ rating on the stock with a target price of RM0.96. This valuation is based on an unchanged 7x CY26 EPS, signaling a cautious outlook amidst the prevailing tariff-related headwinds and the need for the company’s diversification strategies to yield tangible results.