Wednesday, November 10, 2010

A furniture stock called LIIHEN

There are plenty of furniture stocks listed in Bursa Malaysia, including the recently listed HOMERITZ. Most of them are majoritically doing export business, and hence, furniture stocks are known to be cyclical and buoyed by the worldwide economic sentiment.

You would probably not be interested in furniture stock at the moment, especially when the Ringgit is going high against USD, which is not so good for export industries. However, there is one called LIIHEN (7089, 利兴) which attracted my attention.

Located in Muar the "furniture town" in Johor, Lii Hen has been around for decades since 1985, and now their furniture plants spans across an area if approximately 30 acres, undertake the full range of wood-based manufacturing activities from timber processing up to manufacturing and packaging of finished goods.

This is their corporate structure:

The boss, Mr Chua Lee Seng (蔡利成) has been active in local, state as well as national level of furniture associations, and has taken significant roles including executive advisor of Muar Furniture Association, president of Federation of Johore Furniture Manufacturers & Traders Association, etc.

Lii Hen was first listed in 2nd Board in April 2000, and transferred to Main Board in 2002. Most of the time, Lii Hen was a dull counter, except once been "goreng" around October 2004. However, it shows remarkable fundamental improvement since 2009, despite the global economic downturn.

As you can see, from 2009 onwards, its EPS surges, boosting its ROE to above 15%. And then, Lii Hen paid dividend every single quarter. If this is sustainable, it would become a dividend stock too.

Note that there was a fire incident on 28 October 2009 night at one of their main premises, and it was covered by insurance. The fire caused the total loss of buildings, inventories, plant & machinery and factory equipments amounted to RM8.3 million. The fire had caused lost of sales in 2009 Q4, and you can see that quarter has some figures gone red in the table above.

Anyhow, Lii Hen started to show better result a few months prior to the fire incident. After the fire, they promptly recovered and resume the up-trend again, as the disruption of the production capacity due to the fire incident occurred in the preceding quarter had been fully restored at rented premises in 2010 Q1. You see another red in the net profit of 2010 Q2 "due to the erosion of profit margin resulting from the depreciation of USD against RM".

Based on its closing price of RM1.23 on 9 November 2010, and using the figure of its rolling quarter:
  • PE = 1.23/0.35 = 3.51
  • DY = 0.145/1.23 = 12%
That's why it attracted my attention.

Click here to visit the website of LIIHEN.

Disclaimer: This article is intended for sharing of point of view only. It is not an advice or recommendation to buy or sell any of the mentioned stock counters. You should do your own homework before trading in Bursa Malaysia.


Anonymous said... Reply To This Comment

Hi Voyager8, thank you for your sharing.

LIIHEN's EPS on year 2005, 2006 & 2007 is only 0.01, 0.01 and 0.02 respectively. Any reason cause the low profit?

Best Regards,

Voyager8 said... Reply To This Comment

Hi dragonism,

You can find explanation from the chairman in the annual reports.

Anonymous said... Reply To This Comment

Hi Voyager8,

I found that all the furniture stocks are traded at a very low PE. (Based on NANYANG daily press at 15 Nov)
E.g. HOMERIZ (PE= 4.4)
POHUAT (PE= 4.22)
What u think about the reason?

And, what make u prefer LII HEN rather than HOMERIZ?

Thanks a lot.

Best regards,

Voyager8 said... Reply To This Comment

Hi Lee,

HOMERIZ is too young. It is just newly listed, and its data as a public listed entity is too little to analyse.

LII HEN is not only furniture manufacturing and marketing, they also plant and harvest the raw material - wood. This mean they have better control on the supply chain.

messi said... Reply To This Comment

hi Voyager, take a look at Latree. it is trading at 5.2x PE now. see how much OCF it made in FY2013, u will be amazed! With dividend of 6.3sen, it's DY is 5%. :)

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