• Business profile. Focus Lumber Berhad (FLBHD) is mainly engaged in manufacturing and sale of plywood, veneer and Laminated Veneer Lumber (“LVL”), and investment holding. Plywood is the core product, generating bulk of group’s revenue. FLBHD is currently trading at 9.4x trailing P/E. It has net cash per share of 71 sen which is 52% of its share price; and attractive dividend yield of 5.9%.
• U.S. Recreational Vehicle (RV) industry outlook remains bright . RV market is the Group’s main growth driver. Circa 64.9% of Focus Lumber Bhd’s total revenue in FY14 was derived from US market, most of which is to the RV industry in Elkhart, Indiana (the centre of the US RV market). In tandem with the US RV market expected growth on the back of recovering US economy, we opine that demand for the Group’s plywood is likely to increase. According to the Recreation Vehicle Industry Association, RV shipments in 2015 are expected to reach approximately 365k units, which would be the highest total since 2006. This would mark 6 consecutive years of shipments growth as the industry has bounced back from effects of the financial crisis in 2007/2009. RV shipments climbed to 357k units in 2014 from 166k units in 2009, a CAGR growth of 14.1%.
• Net beneficiary of strong USD. We note that FLBHD is a net beneficiary of strengthening USD as most of its export revenue is sold in USD while production cost is almost entirely denominated in MYR. Based on its FY14 annual report, circa 97.8% of the Group’s revenue was derived from exports s ales .
• On technical perspective, share price is about to reverse after recent retracement from RM1.74 on 24 July 2015 to recent low of RM1.27 and well supported by 61.8% FR level (RM1.29). Moreover, the stock is grossly oversold and about to bottom out from oversold level in near term, substantiated by reading from MACD, RSI and Slow Stochastics oscillators. Coupled with “Hammer” candlestick on weekly chart, we are targeting RM1.46 (38.2% FR) and RM1.57 (23.6% FR), with a long term objective of RM1.74 (all-time high). However, immediate supports are at RM1.35 and RM1.30. Cut loss below RM1.27.

Source: Hong Leong Investment Bank Research - 20 Aug 2015