We met Lee Swee Kiat (LSKG) Chief Financial Officer (CFO), Dato Eric Lee, recently to get an insight on 2023 earnings prospect following its solid 9M22 performance where earnings jumped by 56.3% YoY from RM5.9mn in 9M21. We opine FY22 to be better than FY21 as management guided its Cuckoo Napure sales volume segment to hit 11k – 12k (FY21:7k) with turnover close to RM20mn, the absence of impairment loss from Italhouse in upcoming quarters (which 100% completed by 3Q22 of RM4.2mn in value), and higher sales in 4Q22 due to year end festive season. Management also highlighted the possibility to pay a higher dividend after rewarding a recurring 2.5 sen DPS in the past 4 years.
Stable earning is expected to continue in 2023 supported by 1) absence of its impairment loss from Italhouse upcoming quarters, 2) stronger sales in domestic segment thanks to full economic reopening 3) 20k targeted sales volume with c.RM35mn turnover from the Cuckoo Napure mattress and 4) declining raw material cost (natural latex). No significant 2023 spending capex were mentioned however, other than RM1mn new allocation on green energy to set rooftop solar power generation for its operation. We remain cautious however given the negative effect of inflation on global consumer spending and a prolong global supply chain disruption. Hence, we maintain our earnings forecast at this juncture.
Reiterate a BUY call on LSKG at TP of RM0.83 based on 10.1x PER that is pegged to FY23F EPS of 8.2sen.
Source: BIMB Securities Research - 22 Dec 2022
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