• SIGN (listed in Jan 08) is Mala ysia’s leading pla yer for branded kitchens. The group provides one-stop solution from the designing to production and installation of kitchen systems and wardrobes. This integrated approach allows SIGN to reap economies of scale, garner consistently high margins and maintain strict quality controls. There are minimal cost pressures, as major raw material costs (particularly medium density fibreboard, or MDF) have been relatively stable and sourced locally.
• To meet the rising demand from housing development, SIGN also outsources the manufacturing works to furniture makers like MIECO and HEVEA. We like this business model, which requires minimal amount of capex and yield relatively high margins as compared to its peers in the furniture manufacturing industry coupled with providing the flexibility in terms of inventory and cash flow management.
• No significant impact to its bottomline from slowdown in property market. While the property sector is currently challenging, SIGN sees no significant repercussions to the Group’s long-term goals given the continuing diversification and brand value-add within its retail and project portfolios. Besides, as kitchens are the last to be installed before delivery to the buyer (usually 2-3 years after the property is sold), management is cautiously optimistic that the FY16 outlook will remain positive, underscored by the strong property industry in 2012-2014.
• Overall, retail clients contribute 20-30% to revenue whilst the remaining 70-80% comes from projects – mainly to developers for high-end condominium projects. To recap, since IPO exercise in 2008, SIGN’s revenue and core earnings had grown at CAGR of 14% and 13% to RM273m and RM36m in FY15, respectively.
• More contracts in the pipeline? According to market newsflows, SIGN’s potential major winnings (within the next 6-12 months) from local orders could come from China’s Country Gardens project in Is kandar (worth RM180m) whils t overseas contract could come from London Battersea Phase 1 (BSP1) kitchen job (estimated about RM150m).
• Values emerge after recent carnage. Consensus is projecting SIGN to record steady revenue and earnings CAGR of 12% and 15% to RM343m and RM48m during FY15-17, respectively, underpinned by healthy unbilled order book of RM160m and tender book of RM400m (with tender success rate of 50-60%), which can be used to replenish its order book. At RM1.88, SIGN is trading at undemanding valuation of 4.8x FY16 P/E, supported by attractive dividend yield of 6.4%. We believe such valuations have provided sufficient margin of safety and cushion further sharp share price decline, supported by grossly oversold daily indicators.
• Deeply oversold. From 52-week high of RM3.27 on 4 Aug, SIGN’s s hare price tumbled 44% to a low of RM1.83 (26 Aug & 2 Sep) before closing at RM1.88 yesterday, in tandem with the broader market carnage amid external and internal concerns coupled with poorer-than-expected 4Q15 results (mainly arising from provisions).
• Technically, its deeply oversold daily charts, weekly slow stochastic oscillator and “Tweezers Bottom” formation suggest potential reversal of downtrend. Key supports are RM1.73-1.83 whilst upside targets are situated at RM1.98 (10-d SMA) and RM2.08 (the RM2.31-2.08 gap down on 25 Aug). A decisive breakout above RM2.08 will spur prices further to refill the gap at RM2.31 (24 Aug low). Cut loss at RM1.70.

Source: Hong Leong Investment Bank Research - 8 Sep 2015