Lii Hen Industries - Strong Ending

Date: 22/02/2019

Source  :  HLG
Stock  :  LIIHEN       Price Target  :  3.66      |      Price Call  :  BUY
        Last Price  :  2.90      |      Upside/Downside  :  +0.76 (26.21%)

Lii Hen’s FY18 core earnings of RM58.4m (-24.7%YoY) came in within our expectation, accounting for 101.1% of our full-year forecast. The group posted higher sales volume in 4Q18 (+6.4%QoQ; +19%YoY) but was weighed down by stronger ringgit. Moving forward, under the lower cost environment, we opine that margins will improve. A DPS of 2sen was declared. We maintain our earnings forecasts and a BUY rating with an unchanged TP of RM3.66 as we pegged to an unchanged PE multiple to 11x of FY19 EPS.

In line. Lii Hen’s FY18 core earnings of RM58.4m (-24.7%YoY) came in within our expectation, accounting for 101.1% of our full-year forecast.

Dividend. Declared 4th interim DPS of 2.0 sen (ex-date: 11 Mac 2019) bringing YTD dividend to 11.5sen, translating to a dividend yield of 4.1%.

QoQ. Revenue increased 6.4% from USD47m to USD50m, however thanks to the stronger USD against MYR (4Q18: RM4.17/USD vs 3Q18: RM4.08/USD), sales in terms of ringgit improved by 8% to RM216.8m. Core earnings ballooned by 39.7% to RM22.1m on higher sales volume and lower effective tax rate.

YoY. Revenue grew strongly by 19% to USD50m in 4Q18 (from USD42m in 4Q17), however this only translated to a 17.3% in terms of ringgit revenue, as there was a slight decrease in local sales by 2.3%. Core earnings increased by 43.3% due to higher sales volume and lower operating cost.

YTD: In FY18 the group achieved a 21% sales growth in to USD192m, however sales in ringgit terms was only at 11.7% due to the stronger RM against USD (FY18: RM4.03/USD vs FY17: RM4.29/USD). However, core net profit declined by 24.7% to RM58.4m, mainly attributed to higher operating cost, chiefly from the implemented foreign labour levy (effective Jan-18).

Outlook. Moving forward, we opine that Lii Hen will benefit from (1) lower engineered wood selling prices (lower cost of production), and (2) stronger demand from US (result of US-China trade war). We also think that the group will be less affected by the labour levy in FY19 as they had the year to adapt to and adjust their ASP.

Forecast. Unchanged. We maintain BUY, with unchanged TP of RM3.66 pegged to PE multiple of 11x of FY19 EPS. We continue to like Lii Hen for its strong balance sheet (net cash per share 35.8 sen as at 4Q18), generous dividend payout (yield of 6.4%) and ongoing efforts to adopt effective cost management.

Source: Hong Leong Investment Bank Research - 22 Feb 2019

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