Posted by kcchongnz > Jun 12, 2013 07:48 AM

Value Investing. Does Lii Hen satisfies the 5 yardsticks of Cold Eye? 

The table below details the 5 metrics of Lii Hen compared with the yardsticks: 

5 yardstick of investing by Cold Eye for Lii Hen

1 ROE 15.9% >15% 
Net profit 21363
Equity 134697

2 Cash flows OK 
CFFO 19063 89% CFFO/NP 
FCF 6899 Positive OK 

3 PE ratio 4.6 <10 
Price 1.64
EPS 0.357

4 Dividend yield, % 7.3 >3.5 
Dividend , sen 12.0

5 Price/NTA 0.76 <1 
NTA 2.16

It appears that Lii Hen meets all the requirements of a value stock. However we need to check to ensure that there is at least a growth in line with the growth of the overall economy and the company is not too risky to invest in. 

The company’s revenue and net profit has been growing at a CAGR of 16% and 45% respectively for the last 7 years. Together with the anticipated housing recovery in the US where the company has been exporting its furniture product to, we can say the growth will still be there for some years. 

With a total debt-to-capital ratio of 0.17, we can safely say that there is little risk of bankruptcy for this company. 

It is concluded here that Lii Hen is a great value stock to invest in.

Posted by kcchongnz > Jun 14, 2013 08:49 AM

Which is a better stock, Lii Hen or Latitude Tree? 

I have stated that Lii Hen meets all the requirements of a value stock and that there is also reasonable growth in the business and it is also not a risky stock basing on its balance sheet. But how is it compared to Latitude Tree, a comparable furniture exporter and also a value stock if you analyze its financial? 

Lii Hen Latitude 
Growth Trailing twelve months
Revenue 22% -1.0% 
NI 92% 122.2% 

Lii Hen has a nice growth of its revenue of 22% the last twelve month whereas the revenue for Latitude is basically flat. However, Latitude's net income grew at a higher rate. Between the two, I will prefer Lii Hen which has a good revenue growth which is a higher quality growth and also has a good growth in earnings. 

It is such a coincidence that both Lii Hen and Latitude has similar kind of margins as shown below. 

Margins Lii Hen Latitude 
Operating margin 7.9% 7.9% 
NI Margin 6.2% 6.4% 

But which is more efficient? 

Efficiencies Lii Hen Latitude 
NI Margin 6.2% 6.4% 
Asset turnover 1.75 1.25 
Leverage 1.47 1.55 
ROE 15.9% 12.5% 
ROIC 17.3% 13.1% 


The winner for ROE is Lii Hen with ROE of 15.9%, higher than my requirement of 15%. You can see from the dissection of ROE above that Lii Hen wins in the metric of asset turnover, meaning more sales in relation to assets it holds, even though it has a lower net profit margin and financial leverage. 

Lii Hen's return of invested capital at 17.3% is also substantially better than that of Latitude Tree. 

One would think that due to the efficiency of Lii Hen, it should be valued higher than latitude, but is it? 

Market valuation Lii Hen Latitude 
PE ratio 4.6 3.7 
EV/Ebit 3.2 4.1 

In term of PE ratio, yes, Lii Hen is valued higher than Latitude. But PE ratio is not a true reflection of whether it is cheaper, especially when debts is involved. A better comparison should be the enterprise value over earnings before interest and tax to account for both capital providers. In term of EV/EBIT, it is surprised that Latitude is valued higher at 4.1 compared to 3.2 of Lii Hen. Anyway, both stocks are value stock using this metric.

Posted by xingxian > Jun 14, 2013 05:56 PM

While it is good, one thing to think about Lii Hen is its corporate governance. With so much related party transaction going on... for example this one... 

Paragon Progress FD, LHF to purchase RM21.6 million Monthly Chua Lee Seng 
Sdn Bhd8 
the lacquer, thinner and Tan Bee Eng 
- principally involved furniture parts and Tok Heng Leong 
in manufacturing of to award finishing works Chua Yong Haup 
coating, polyurethane 
furniture parts 

and this one... 

Double Soon Huat FD to award sub-contract RM2.0 million Monthly Chua Yong Haup 
Enterprise7 
work for furniture parts 
- furniture parts and components 
sub-contractor 

why do we need a subcontracter in the family???!!!! 

I think another criteria to add in would be good corporate governance. Which will effectively rule out CSL. And the likes of XingQuan, Xidelang. 

Freight was good at one point but now it is just too exp! I really like the good corporate governance.