LII HEN INDUSTRIES BHD
Primary Symbol & Exchange:
7089 - Ordinary Shares - Malaysian Stock Exchange
Price/share @ 23/7/09 RM: 1.29
Mkt Cap RM’m :................. 77.40
Shares (m):....................... 60.00
Par RM: ..................... ........1.00
SECTOR CLASSIFICATION
MSEB: Consumer
Fox Capital: Furniture
Executive Chairman: Chua Lee Seng
Managing Director: Chua Yong Haup
KNOWN MAJOR SHAREHOLDER(S) (as at 31/12/2009)
Assets Muar Sdn Bhd* 42.31%
* Deemed interested by the Chairman, Chua Lee Seng. In addition, Chua Lee Seng also hold direct interest of 1.23%
Contact Info
Plot 43 Kawasan Perindustrian Bukit Pasir
Muar, Johor Bahru, 84000 Malaysia
Phone: 60 6 985 7202
Fax: 60 6 985 7818
Corporate website: http://liihenfurniture.com/
BACKGROUND
Lii Hen Industries Berhad, an investment holding company, engages in the manufacture of wooden furniture. It primarily offers office and residential furniture products. The company’s products include bedroom and sofa set, occasional, utility, buffet and hutch, dining, entertainment unit, living room, dining, empty space sideboard, shelves rack, sliding door, and wardrobe furniture products. It also involves in the manufacture of furniture components, and processing and kiln drying of rubber wood and timber. In addition, the company engages in planting, cultivating, milling, and dealing agriculture and forest products primarily from rubber trees and other kinds of woods, as well as in letting factory building.
Established for over 15 years, LII HEN Group has become one of the leading furniture manufacturers in Malaysia from household to office furniture under its brand name,
- "MEGA FURNITURE". " MEGA " ~ A declaration of assurance on Quality, Choice, Value & Design.
With their compromise in providing premium quality products that worth the value for money to our worldwide customers, their group has integrated in upstream and downstream activities to enhance quality control.
It operates in Malaysia, the rest of Asia, the United States, Africa, Australia, and Europe. Lii Hen Industries is based in Johor Darul, Malaysia.
The Group’s revenue by Geographical segment for FYE 31/12/2009 is as follows:-
Country/region......Revenue...............%
America...................RM172,134k....... 78.7%
Malaysia....................RM30,978k........14.2%
Asia............................RM9,470k..........4.3%
Europe.........................RM4,906k..........2.2%
Africa.............................RM823k..........0.4%
Australia........................RM539k..........0.2%
3) Its balance sheet has also strengthened from net borrowings of ~ RM900,000 a year ago to net cash with RM18.630 million as at end-March 2010.
At closing price on 23/7/2010 of RM1.29 per share, the market capitalisation of Lii Hen is RM77.40m (60m shares x RM1.29 per share).
This means that if Lii Hen were to be taken private at the current price of RM1.29 per share, the actual effective cost is only:-
...RM77.4m
- RM18.6m net cash held by the company
-----------------
...RM58.8m
=========
If the latest quarterly net earnings of RM7.4m can be sustained for all subsequent quarters, the total cost would have been fully recovered within 2 years (RM7.4m x 4 quarters x 2 years = RM59.2m).
4) It is worth noting that based on latest quarterly result, Lii Hen stands out as the most profitable furniture company on Bursa Malaysia even though all its plants are in Muar:-
.................................Pre-tax profit/(loss) - latest quarter
Lii Hen.......................RM9,684k
Latitude Tree..............RM4,434k
Jaycorp.....................RM2,173k
SHH Resources.........RM1,943k
Poh Huat...................RM1,434k
Sern Kou...................RM1,162k
Tafi Industries................RM495k
Len Cheong...................RM42k
Eurospan....................(RM644k)
SYF Resources.........(RM1,787k)
Euro.........................(RM2,217k)
UDS Capital..............(RM2,291k)
Baswell...................(RM3,129k)
The better performance is attributed to the following:-
i) They changed their focus to market to bigger furniture wholesalers & retailers in the US (from serving smaller customers, previously)
ii) Their objective is to continuously raise their revenue.
iii) The significantly higher revenue generated economies of scale in the company's manufacturing operations.
iv) They have been outsourcing its own manufacturing operations as their plant is working at full capacity. This is cheaper than building new factories & new production lines.
According to Executive Chairman, Chua Lee Seng, the worst is over and Lii Hen's revenue is unlikely to drop back to the RM40m level in the quarterly periods of the last few years prior to 2009.
5) The disruption of the production capacity due to the fire occured in 4Q2009 had been fully restored at the rented premises in 1Q2010. Hence, Lii Hen should now be able to resume its business smoothly to achieve a record breaking year in terms of performance.
6) Strong 1Q2010 (quarter ended March 2010) performance reported (its best ever quarterly earnings at 12.38 sen/share) in its business vs. seasonally subdued demand as normally shown in past years (due to slower demand at beginning of year). If we base on normal seasonally subdued demand as shown in previous years, the Group should be able to report better earnings in subsequent quarters (barring any unforeseen circumstances).
7) Strong confidence by its Board of Directors on Lii Hen's current year prospects: They expect the demand for the Group's products to sustain or improve in the subsequent quarters.
8) Its Executive Chairman Mr Chua Lee Seng has recently (on 15/7/2010) acquired 30,000 shares (0.05% interest) at RM1.21/share.
His shares ownership after the purchase:
Direct interest : 1.65%
Indirect interest : 43.09%
9) Strong asset backing :
NTA/share : RM1.7872 as at 31/3/2010
Cash/share : RM0.61/share
Net cash/share : RM0.31/share
10) Assuming that Lii Hen is able to record average EPS of RM0.10/share for the next 3 quarters, the full year EPS for FYE 31/12/2010 would be at least RM0.42/share which appears achievable barring any unforeseen circumstances.
Based on this, the forward PER for FYE 31/12/2010 is only ~ 3x. Based on a more realistic PER of 5x (which is still very conservative), the stock should be priced at least RM2.10/share.
11) The insurance claim for consequential loss arising from the fire incident on 28/10/2009 is still pending finalization. This should provide the company with a one-time additional gain (to compensate on the loss of income in Q4 2009)!
12) Above average dividend yield
Based on closing price on 23/7/2010 of RM1.29 per share, dividend yield is at :
.........................................................................................Dividend yield
5 years average dividend/share.........................2.80 sen......... 2.17%
Dividend for FYE 31/12/2009.............................8.50 sen....... 6.59%
Prospective dividend for FYE 31/12/2010.............9.00 sen....... 6.98%
Primary Symbol & Exchange:
7089 - Ordinary Shares - Malaysian Stock Exchange
Price/share @ 23/7/09 RM: 1.29
Mkt Cap RM’m :................. 77.40
Shares (m):....................... 60.00
Par RM: ..................... ........1.00
SECTOR CLASSIFICATION
MSEB: Consumer
Fox Capital: Furniture
Executive Chairman: Chua Lee Seng
Managing Director: Chua Yong Haup
KNOWN MAJOR SHAREHOLDER(S) (as at 31/12/2009)
Assets Muar Sdn Bhd* 42.31%
* Deemed interested by the Chairman, Chua Lee Seng. In addition, Chua Lee Seng also hold direct interest of 1.23%
Contact Info
Plot 43 Kawasan Perindustrian Bukit Pasir
Muar, Johor Bahru, 84000 Malaysia
Phone: 60 6 985 7202
Fax: 60 6 985 7818
Corporate website: http://liihenfurniture.com/
BACKGROUND
Lii Hen Industries Berhad, an investment holding company, engages in the manufacture of wooden furniture. It primarily offers office and residential furniture products. The company’s products include bedroom and sofa set, occasional, utility, buffet and hutch, dining, entertainment unit, living room, dining, empty space sideboard, shelves rack, sliding door, and wardrobe furniture products. It also involves in the manufacture of furniture components, and processing and kiln drying of rubber wood and timber. In addition, the company engages in planting, cultivating, milling, and dealing agriculture and forest products primarily from rubber trees and other kinds of woods, as well as in letting factory building.
Established for over 15 years, LII HEN Group has become one of the leading furniture manufacturers in Malaysia from household to office furniture under its brand name,
- "MEGA FURNITURE". " MEGA " ~ A declaration of assurance on Quality, Choice, Value & Design.
With their compromise in providing premium quality products that worth the value for money to our worldwide customers, their group has integrated in upstream and downstream activities to enhance quality control.
It operates in Malaysia, the rest of Asia, the United States, Africa, Australia, and Europe. Lii Hen Industries is based in Johor Darul, Malaysia.
The Group’s revenue by Geographical segment for FYE 31/12/2009 is as follows:-
Country/region......Revenue...............%
America...................RM172,134k....... 78.7%
Malaysia....................RM30,978k........14.2%
Asia............................RM9,470k..........4.3%
Europe.........................RM4,906k..........2.2%
Africa.............................RM823k..........0.4%
Australia........................RM539k..........0.2%
..............................-------------------..... -----------
TOTAL:...................RM218,850k........100.0%
TOTAL:...................RM218,850k........100.0%
.............................==========......======
WHY WE FEEL LII HEN IS UNDERVALUED?
1) Lii Hen's performance have been improving tremendously since last year as follows:-
.................................................EPS @ total no. of shares = RM60m
1Q2008 .....(RM0.961m).......(RM0.0160)
2Q2008 ......RM0.339m.........RM0.0057
3Q2008 ......RM2.445m.........RM0.0407
4Q2008 ......RM3.639m.........RM0.0606
..................----------------........---------------
..................RM5.462m.........RM0.0910
..................========.........=======
1Q2009.......RM2.582m........RM0.0430
2Q2009.......RM6.507m........RM0.1084
3Q2009.......RM5.917m........RM0.0986
4Q2009.......RM2.200m........RM0.0367 (due to fire incident on 28/10/2009)
..................----------------.......--------------
..................RM17.206m.....RM0.2867
..................=========.....========
1Q2010.......RM7.427m.......RM0.1238
2Q2010......... ? ? (to be announced by 24/8/2010)
3Q2010
4Q2010
2) The financial year 2009 was tremendously exciting and one of the busiest years for the Group. The year started on a cautious note amidst continuous unfavorable reports on the global financial crisis since September 2008. Plummeting demands from developed countries especially in United States of America definitely bore a big impact on the Group’s operation and performance. However, the Group proved its resilience as its customer base continued increasing globally. Despite uncertain and challenging economic environment, the Group’s sales reached a new benchmark high by rising 27% to RM218 million in FY2009 compared to last year of RM173 million. Bedroom set was the main contributor making up of 69% of the Group’s turnover. The fire incident occurred in October 2009 had destroyed one of the main manufacturing plants of the Group. This temporary setback was rectified promptly; the Group managed to rent three readily available factories and warehouse and reassumed operation in November 2009. Thus, disruption was minimized and lost of sales mitigated, and subsequently the majority of the shipments were delivered on schedule.
In line with the increase in sales, the Group achieved a staggering increase in profit after tax of 196% from RM5.46 million in 2008 to RM16.19 million in 2009. The loss due to the fire incident of RM2.81 million had been fully accrued and accounted for in the year under review. Besides increased efficiencies in production and effective control of raw materials cost, the appreciation of the USD against local currency was also major contributing factors.
WHY WE FEEL LII HEN IS UNDERVALUED?
1) Lii Hen's performance have been improving tremendously since last year as follows:-
.................................................EPS @ total no. of shares = RM60m
1Q2008 .....(RM0.961m).......(RM0.0160)
2Q2008 ......RM0.339m.........RM0.0057
3Q2008 ......RM2.445m.........RM0.0407
4Q2008 ......RM3.639m.........RM0.0606
..................----------------........---------------
..................RM5.462m.........RM0.0910
..................========.........=======
1Q2009.......RM2.582m........RM0.0430
2Q2009.......RM6.507m........RM0.1084
3Q2009.......RM5.917m........RM0.0986
4Q2009.......RM2.200m........RM0.0367 (due to fire incident on 28/10/2009)
..................----------------.......--------------
..................RM17.206m.....RM0.2867
..................=========.....========
1Q2010.......RM7.427m.......RM0.1238
2Q2010......... ? ? (to be announced by 24/8/2010)
3Q2010
4Q2010
2) The financial year 2009 was tremendously exciting and one of the busiest years for the Group. The year started on a cautious note amidst continuous unfavorable reports on the global financial crisis since September 2008. Plummeting demands from developed countries especially in United States of America definitely bore a big impact on the Group’s operation and performance. However, the Group proved its resilience as its customer base continued increasing globally. Despite uncertain and challenging economic environment, the Group’s sales reached a new benchmark high by rising 27% to RM218 million in FY2009 compared to last year of RM173 million. Bedroom set was the main contributor making up of 69% of the Group’s turnover. The fire incident occurred in October 2009 had destroyed one of the main manufacturing plants of the Group. This temporary setback was rectified promptly; the Group managed to rent three readily available factories and warehouse and reassumed operation in November 2009. Thus, disruption was minimized and lost of sales mitigated, and subsequently the majority of the shipments were delivered on schedule.
In line with the increase in sales, the Group achieved a staggering increase in profit after tax of 196% from RM5.46 million in 2008 to RM16.19 million in 2009. The loss due to the fire incident of RM2.81 million had been fully accrued and accounted for in the year under review. Besides increased efficiencies in production and effective control of raw materials cost, the appreciation of the USD against local currency was also major contributing factors.
3) Its balance sheet has also strengthened from net borrowings of ~ RM900,000 a year ago to net cash with RM18.630 million as at end-March 2010.
At closing price on 23/7/2010 of RM1.29 per share, the market capitalisation of Lii Hen is RM77.40m (60m shares x RM1.29 per share).
This means that if Lii Hen were to be taken private at the current price of RM1.29 per share, the actual effective cost is only:-
...RM77.4m
- RM18.6m net cash held by the company
-----------------
...RM58.8m
=========
If the latest quarterly net earnings of RM7.4m can be sustained for all subsequent quarters, the total cost would have been fully recovered within 2 years (RM7.4m x 4 quarters x 2 years = RM59.2m).
4) It is worth noting that based on latest quarterly result, Lii Hen stands out as the most profitable furniture company on Bursa Malaysia even though all its plants are in Muar:-
.................................Pre-tax profit/(loss) - latest quarter
Lii Hen.......................RM9,684k
Latitude Tree..............RM4,434k
Jaycorp.....................RM2,173k
SHH Resources.........RM1,943k
Poh Huat...................RM1,434k
Sern Kou...................RM1,162k
Tafi Industries................RM495k
Len Cheong...................RM42k
Eurospan....................(RM644k)
SYF Resources.........(RM1,787k)
Euro.........................(RM2,217k)
UDS Capital..............(RM2,291k)
Baswell...................(RM3,129k)
The better performance is attributed to the following:-
i) They changed their focus to market to bigger furniture wholesalers & retailers in the US (from serving smaller customers, previously)
ii) Their objective is to continuously raise their revenue.
iii) The significantly higher revenue generated economies of scale in the company's manufacturing operations.
iv) They have been outsourcing its own manufacturing operations as their plant is working at full capacity. This is cheaper than building new factories & new production lines.
According to Executive Chairman, Chua Lee Seng, the worst is over and Lii Hen's revenue is unlikely to drop back to the RM40m level in the quarterly periods of the last few years prior to 2009.
5) The disruption of the production capacity due to the fire occured in 4Q2009 had been fully restored at the rented premises in 1Q2010. Hence, Lii Hen should now be able to resume its business smoothly to achieve a record breaking year in terms of performance.
6) Strong 1Q2010 (quarter ended March 2010) performance reported (its best ever quarterly earnings at 12.38 sen/share) in its business vs. seasonally subdued demand as normally shown in past years (due to slower demand at beginning of year). If we base on normal seasonally subdued demand as shown in previous years, the Group should be able to report better earnings in subsequent quarters (barring any unforeseen circumstances).
7) Strong confidence by its Board of Directors on Lii Hen's current year prospects: They expect the demand for the Group's products to sustain or improve in the subsequent quarters.
8) Its Executive Chairman Mr Chua Lee Seng has recently (on 15/7/2010) acquired 30,000 shares (0.05% interest) at RM1.21/share.
His shares ownership after the purchase:
Direct interest : 1.65%
Indirect interest : 43.09%
9) Strong asset backing :
NTA/share : RM1.7872 as at 31/3/2010
Cash/share : RM0.61/share
Net cash/share : RM0.31/share
10) Assuming that Lii Hen is able to record average EPS of RM0.10/share for the next 3 quarters, the full year EPS for FYE 31/12/2010 would be at least RM0.42/share which appears achievable barring any unforeseen circumstances.
Based on this, the forward PER for FYE 31/12/2010 is only ~ 3x. Based on a more realistic PER of 5x (which is still very conservative), the stock should be priced at least RM2.10/share.
11) The insurance claim for consequential loss arising from the fire incident on 28/10/2009 is still pending finalization. This should provide the company with a one-time additional gain (to compensate on the loss of income in Q4 2009)!
12) Above average dividend yield
Based on closing price on 23/7/2010 of RM1.29 per share, dividend yield is at :
.........................................................................................Dividend yield
5 years average dividend/share.........................2.80 sen......... 2.17%
Dividend for FYE 31/12/2009.............................8.50 sen....... 6.59%
Prospective dividend for FYE 31/12/2010.............9.00 sen....... 6.98%
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