Lii Hen Industries Berhad - Big Brother in Furniture Industry

 

Company : Lii Hen Industries Berhad – Big brother in furniture Industry

Business :

Manufacture wide range furniture products (office & home) and export to oversea with North America constituted about 91% of the revenue. The factories are located in Muar and Tangkak districts. Company also planting rubber trees in Johor. Company is the clear leader in Malaysia furniture industry.

 

 

Fundamental :

The company has net cash of RM160 million (2020 report) and pay dividen every quarter. Strong cash flow as products are exported oversea. Company is profitable every year and revenue are increasing steadily from 2016 to 2020. It is definitely a growth company. However, 2021 revenue will drop due to MCO lockdowns.

 

 5 years revenue

There is clear sign of growth revenue from 216 to 2020. Probably due to trade-war between China and USA. Both CAGR- revenue and PAT are showing growth.

 

 Sales Related:

Geography break down of the revenue for 2020 is as follow.

Their customers are US furniture importers, wholesalers and retailers. Company is a clear beneficiary from USA-China trade war and has established strong foothold in NA market.

 

Cost of sales

Two major costs are raw material and labour cost.

 

Lates result at glance :

The Q2 revenue and profit have dropped on YoY and QoQ basis. Primarily due to MCO shutdowns. It has been 4 quarters on the row that revenue drop. However, company still manage to chalk up 7.8 million profit despite challenging operating conditions (FMCO and container shortage).

 

 

 Geographical breakdown of revenue for Q2 result.

 

Comparing to immediate preceding quarter, revenue and profit also dropped.

 Prospect:

Demand for the products is definitely there but disrupted by pandemic. Company has bought a piece of land for expansion according to their 2019 annual report.

 

Risk

Shut down:

It is very clear that shutdown during FMCO has caused the revenue to drop. If not wrong operation is only allowed on 17^th August 2021, so there is 7 weeks shut down in Q3. Hence, Q3 result will not be favourable as well.

 

Raw material cost:

Certain raw materials like particle, chipboards and carton boxes are on the rise. Hence profit margin will be squeezed

 

Shipment cost and container shortage:

Shipment delay and high container cost. There are total of 18,010 containers ship out in 2020. The increase of freight cost will definitely impact the sales. However, it is not sure if their sales are on FOB or CIF basis. Global container shortage is still an issue to company.

 

Technical Analysis on Chart:

Price has been dropping since mid Nov 2020 and bottom at support level RM2.90. Price then move up to RM3.21.

 

Forecast EPS & price

Date	27 August 2021		Current Price	RM3.21
EPS
Quarter	Q1	Q2	Q3	Q4	Total
Forecast	6.79	4.36	2	5	18.15
Actual	6.79	4.36

 At time of writing, I own very small amount of LIIHEN shares and waiting to accumulate.

Technical Analysis - Bullish Triangle Continuation

There are 2 types of bullish triangle as follows:

1) Ascending Triangle (Flat upper trendline).  

Bullish formation when price break the upper horizontal line. The is a clear consolidation phase before the breakout take place.

2) Bullish Pennant (narrowing trendlines).

Bullish trend took place earlier on. The upper trendline is descending but lower trendline is ascending. This is consolidation phase. Sign of equal buying (late comers) and selling (profit taking). The breakout will take place when good news released.

The key thing to remember here is Upper trendline and Lower trendline narrowing and meet.  

A great example you can see is BPPLAS chart below.

Formosa Prosonic Industries Berhad - The audio maker

 

Company : Formosa Prosonic Industries Berhad

Business:

Design, manufacture and sales of smart audio system including wireless speakers to multinational companies.

 

The companies have operations in Port Klang and Penang. 

It is a Taiwanese managed company with a track record of revenue growth. Seem like a good management as they disposed their loss-making associate (Acoustech & FP Groud Ltd UK). The profit margin is not high but managed to grow the company well.  

They are reaching RM 1 billion revenue soon. Biggest shareholder is Wistron, a Taiwan based ODM company. Cold Eye is one of the major the shareholders.

 

 Fundamental :

Company has net cash of RM270 million as at end of 2020. Revenue dropped slightly in 2020 compared to 2019 due to MCO shutdown. Overall trend is growing with strong cash flow from operation. Company has no problem of paying dividen each year (approx RM 34.6 million or 14 cents).

 

Quick Financial information:

Source: Malaysiastock.biz

Both CAGR revenue and profit after tax are good. The profit margin is around 8-9% and good dividen yield.

 

5 years revenue

Year	2016	2017	2018	2019	2020
Revenue	340,607	461,182	560,520	766,198	756,988
Profit After Tax	20,255	40,491	36,633	41,786	52,513
EBITDA Margin	7.7%	11.4%	9.5%	8.7%	10.7%

 

There is clear growth of revenue from 2016 to 2020. However, profit after tax is a bit fluctuate. Business is generally seasonal according to their report.

 

Customers:

There is no geographical breakdown of their revenue but there 3 major customers as reported in the annual report below.

 

Q2 Result

Profit back to RM23 million with improved margin. The past 4 quarters has seen the revenue surpassed RM200 million. Moving forward, RM 1billion revenue should be achievable.

 

 Prospect:

Company is growing organically with no major expansion in the pipeline.

 There is exposure to USD & GBP currency and should benefit from strong foreign currency.

 

Company will dispose a piece of land in UK. The disposal was completed by 1^st July 2021. So another RM8 million profit into their Q3 report.

 

Risk

COVID shut down

The Port Klang operation has been affected due to MCO3. The 60% work force may have impact to operation as well. See their note in the Q2 report.

  

 DIVIDEN

High dividen payout ratio of > 65%. Dividen is usually paid once a year which normally around April. A minimum of 14 cents is expected for FY 2021 . There is great possibility of higher dividen as revenue and profit for first two quarters are good. Perhaps around 18 cents??

 

Technical Analysis on Chart:

Price peaked at RM3.40 at mid Feb 2021 then slowed down. On Friday the price gap up and broke resistance of RM3.00 when good Q2 result was released (speculation is bit high). The support level is RM2.60 and expected profit taking will take place in the next few months.

 

 

Forecast EPS & price

 

Date	20 August 2021		Current Price	RM 3.13
Current PE	9.5		Fair Value	RM 2.63
EPS
Quarter	Q1	Q2	Q3	Q4	Total
Forecast	8.3	9.4	5	5	27.7
Actual	8.3	9.4

 Coming Q3 revenue will slightly drop due to MCO3 shutdown but it will partially offset by the land disposal gain in UK.

 

At time of writing, I don’t have any FPI shares. Waiting for support level price to re-enter.

KIMLOONG & INNOPRISE Comparison

Both plantation companies have good dividen yield. I am wondering which one is better for investment. I spend the whole Sunday extracting information from their annual reports. 

Below is my comparison for both plantation companies. Some information are still missing at time of writting. I think the choice is clear for me now.

Kimloong's Telupid mill has problem of getting enough FFB for their production. Hopefully this problem will be solved when Kimloong bought existing plantation land that will contribute 30,000MT FFB to the mill.

Another key difference between both companies is the age of palm trees. Kimloong has 26% of old palm trees (>20 years) so they need to do replanting in the future.

INNOPRISE - Is there a hope in plantation?

 

Company : INNOPRISE PLANTATIONS BERHARD

Business :

Oil palm cultivation and fresh fruit bunch processing with planation sites in Sabah. Yayasan Sabah is the largest shareholder (50.22%) and TSH plantation is the second largest. One of the smallest plantation companies among the listed plantation company with revenue just over RM150 millions.

 

It is good that company is MSPO certified as ESG is hot an issue now for plantation.

 

Fundamental :

Company has no bank borrowing as at 31^st December 2020. TSH is the second largest shareholder and will be able to contribute their plantation expertise to the company. The company has adopted a dividen policy of distributing 80% of the profit after tax starting begining August 2020. This is good news to shareholders. Revenue is cyclic as palm oil is commodity see their 5 years revenue chart below.

 

5 years revenue

Year	Revenue (million)	PBT (Million)	Mature area (Ha)
2020	154.936	46.261	11,505
2019	118.600	18.308	11,260
2018	114.220	12.485	11,074
2017	138.211	55.451	10,761
2016	136.349	41.387	9,542
2015	115.043	26.763	8,080

 

 Q1 Result

 

Profit and revenue are back on track again. Hopefully can maintain consistency for whole 2021 FY. Profit margin is healthy at 20-30% range.

 

Prospect:

Organic growth opportunity as mature area is slowing increasing every year. The yield will increase as 17% of young mature trees are coming to prime mature. The forecast of yield increase is about 3%. No further replanting is required and hence no additional cost.

 

Trees	Age	Percentage	Yield
Immature	1-3 years	6%	Low or no
Young mature	4-7 years	17%	medium
Prime mature	>8 years	77%	High

 

 

 

 

 

 Fresh Fruit Bunch production:

Month	Production (Metric Tonnes)	Production (Metric Tonnes)
July 21	20,994.54
June 21	22,719.79	57,500.41
May 21	17,565.83
April 21	17,214.59
March 21	16,714.79	47,458.27
Feb 21	15,018.30
Jan 21	15,725.18

 

Coming quarter no. 2 result will be good as price and FFB production are on the rise. The Q2 FFB production has increased by 20% based the table above. Theoretically the earning per share should increase by 20%  and not forgeting the high CPO price.

My view on share price:  

Price peak at RM1.30 and dropped drastically (seems like speculation activity?)

Price will trend higher in near term as it tries to break 200 moving average but also high risk of speculation. If entered around RM1.00 then should be safe.  

 

Dividen:

Dividen should be good and expected to be paid quarterly. See below statement from their annual report.

 

Forecast earning & PE.

In terms of earning, the forecast EPS is 8.48 and fair value price should RM1.11 with current PE of 13.18 (9 Aug 2021). Dividen yield should be 6% based on 80% distribution rate.

 

Q1	Q2	Q3	Q4	Total
1.88	2.2	2.2	2.2	8.48

 

At time of writing, I own some INNOPRISE shares. This is also another share counter owned by Cold Eye (Top 10).