Results Update

Latitude has just announced its results for 1H2010 ended 31/12/2009. Its net profit increased by 2.5% q-o-q or 2-fold y-o-y to RM11.4 million while turnover increased by 6.6% q-o-q or 21.3% y-o-y to RM135 million. The improved perfromance 'was mainly attributable to the increase in sales as a result of the improvement in global economy and in particular the US consumption which has continued to improve'.


Table 1: Latitude's 8 quarterly results


Chart 1: Latitude's 18 quarterly results

Concern for 2010

I am a bit doubtful that Latitude can maintain its sales volume given the precarious financial position of US consumers, which accounts for a significant portion of its customers. Just this morning, we have learned that '(s)ales of new homes (in US) plunged to a record low in January, underscoring the formidable challenges facing the housing industry as it tries to recover from the worst slump in decades' (for more, go here). The sales of furniture is closely correlated to the sales of new homes. Does this mean that Latitude's sales volume going forward may suffer a similar decline?

Valuation

Latitude (closed at RM2.23 at the end of the morning session) is now trading at a PER of 4.6 times (based on last 4 quarters' EPS of 49 sen). At this multiple, Latitude is deemed attractive. However we cannot assign too high a multiple for Latitude due to the concern on the sustainability of its sales. Based on a PER of 6 times, Latitude's fair value is about RM2.94.

Technical Outlook

Latitude broke above its long-term downtrend line resistance at RM1.50 in November last year. Early this month, it surpassed its horizontal resistance at RM2.00, to hit a high of RM2.63. Its next strong resistance is at RM3.35-40 while there is also some resistance at RM2.85-90.


Chart 2: Latitude's weekly chart as at Feb 24, 2010 (Source: Tradesignum)

Conclusion

Based on good financial performance & attractive valuation, Latitude may still have further upside. However, we need to be a bit cautious about Latitude's prospect for 2010 as its main customers in US are showing some signs of weakness.