This article first appeared in The Edge Financial Daily, on March 22, 2016.

White Horse Bhd
March 21 (no transaction)
Maintain buy with a higher target price of RM2.75: Together with our clients, we recently visited White Horse Bhd’s factory in Tanjung Langsat, Johor. White Horse is one of the leading tile players in the Asia-Pacific region, principally involved in the manufacturing and distribution of ceramic and homogeneous tiles. Its products are marketed in various markets in the Asia-Pacific, the Middle East and Europe.

White Horse has a total annual manufacturing capacity of 40.65 million sq m, of which 28 million sq m of the capacity comes from manufacturing plants in Pasir Gudang and Tanjung Langsat, while the remaining capacity of 12.65 million sq m comes from its Vietnam plant.

We visited the newer plant in Tanjung Langsat, which is equipped with more technologically advanced machinery. The plant in Tanjung Langsat produces tiles of bigger dimensions, 600mmx600mm and above, while the older plants in Pasir Gudang manufacture tiles of smaller sizes.

The manufacturing of tiles involves batching and grinding, spray-drying, press, glazing/decorating, firing, polishing and packaging. Currently, the plant operates 24 hours with a capacity utilisation rate of about 85%.

The manufacturing process is highly automated except for part of the quality assurance and quality control procedures, polishing and packaging. It has computer controlled robots to carry stacks of green tiles. We observed that equipment used in crucial processes such as the press and kiln were superior machinery imported from Europe.

One of its kiln lines has a length of 182m, believed to be among the longest kilns in tile manufacturing plants worldwide. Besides, it is adopting inkjet printing, which is the latest technology in decorating process.

White Horse emphasises on design, and research and development (R&D). It has dedicated teams in the Pasir Gudang and Tanjung Langsat factories to carry out the design and R&D works. These are crucial to ensure continuous innovative product offerings and maintaining its position as a market leader on its home ground. Through R&D, types of raw material, formulation and processes are improved to enhance quality of products, operation efficiency, and as cost-optimisation efforts.

We have made some adjustments to our earnings model and trimmed our financial year 2016 (FY16) to FY18 earnings forecasts by 2.4% to 2.6%.

We are positive on its operation in Vietnam as growth in Vietnam has picked up. Vietnam recorded  6.7% gross domestic product (GDP)  growth in 2015, with a consensus forecast of a 6.7% GDP growth in 2016. This was further boosted by the liberalisation of property investment by foreigners from July 1, 2015. Meanwhile, for the local market, we expect demand for tiles to remain stable. We reiterate our “buy” call on White Horse. —TA Securities, March 21