Lii Hen Industries Berhad (LIIHEN 7089)("Lii Hen") had just released its Third Quarter 2013 Financial Year result today, November 26 at 5.49 pm through Bursa Malaysia.

Lii Hen reported in its Third Quarter 2013 Financial Year result that it made RM 5.224m on revenue of RM 79.461m, as compared to RM 7.822m on revenue of RM 91.441m in Third Quarter 2012 Financial Year. Thats down by 33.21% in Net Profit After Tax. In terms of Revenue, it is also down by 12.9% Q3/2013 vs Q3/2012.

On a Q3/2013 vs Q2/2013 wise, Revenue has seen an increase of 14.02% from RM 69.691m in Q2 to RM 79.461m in Q3. The Board in its Notes to the account accompanying the announcement had opined that the slight increased revenue was due primarily to a stronger United States dollars which has appreciated 5.5% to RM 3.22 during the quarter under review. Our view is that had it not due to the more favourable USD factor to Lii Hen, the Q3/2013 Revenue would have been only RM 75.09m, consequently a mere improvement of 7.74% from Q2.

One pertinent point to take note is that Lii Hen has just witnessed the sharpest drop of revenue from RM 92.388m in Q2/2012 to RM 69.691m in Q2/2013 that caused the massive drop in Lii Hen shares price from RM 1.99 to a low of RM 1.34 when the Q2 result was announced on August 23, 2013. Therefore, one may be blinded to think that the revenue has increased from RM 69.691m in Q2 to RM 79.461m in Q3, but in reality Q2's RM 69.691m was a watered down figure from RM 92.388m.  In short,  had it not because of the more favourable USD to Lii Hen, revenue is actually flat. To add salt to the wound, the Board in its Notes to the account accompanying the announcement has indicated that : "The Group’s third quarter’s results of 2013 might indicated some sign of recovery in the advanced economies, however with the negative factors still lingering in the global world economy and the tapering of QE 3 in United States of America, the performance of the Group for the forthcoming quarter of 2013 will be still challenging and uncertain."

Likewise, although the Q3 Profit After Tax has registered a 101% increase from RM 2.599m in Q2 to RM 5.224m, but after subtracting the realised foreign exchange gain of RM 902,000 due to the more favourable USD, the organic Q3 Profit After Tax would have been RM 4.322m or an increase of 66.29% over Q2 instead of 101%.

Along with the Q3/2013 financial result was the announcement of payment of an interim 2013 dividend of 3%, downed 1% from Q3/2012's 4%. Cooler heads maybe able to spot that Lii Hen has embarked on a steady cut in dividend payments since Q2/2013 result. Is this the end of good dividend payments by Lii Hen or the start of capital preservation by Lii Hen now that it is facing headwinds into the future?

Having considered the tepid and less enthusiastic tones of the Notes to the account accompanying the announcement going forward, as well as the anticipated much slower business volumes in Q4, we therefore recommend a call of SELL/UNDERWEIGHT.