Lii Hen’s FY21 core PATAMI of RM37.6m (-51.8%YoY) came in slightly below our expectation, accounting for 94% of our full-year forecast due to deferment of shipments by customers. We increase our FY22 earnings forecast by 6.3% to account for the deferment in product shipment from 4Q21. Maintain BUY with a TP of RM3.90 (from RM3.88) based on 8.5x FY22 EPS of 46.1 sen. We remain optimistic on the prospects of the company supported by its robust export demand as well as the likely easing of some of the key challenges such as foreign labour shortage and elevated raw material costs. Furthermore, the group also has a healthy balance sheet with NCPS of 71 sen and a decent projected FY22 dividend yield of 5.5%.

Slight miss. Lii Hen’s 4Q21 core PATAMI of RM12.1m (+1.3x QoQ; -33.1% YoY) brought full year FY21 sum to RM37.6m (-51.8%YoY). The results were a slight miss, accounting for 94% of our full-year forecast due to deferment of shipments by customers in 4Q21. Core net profit was arrived after adjusting for forex loss, gain on disposal of PPE, fair value gain on derivative instruments and fair value gain of biological assets totalling a net sum of RM1.4m.

Dividend. 3.5 sen, ex-date: 8 Mar 2022 (4Q20: 4 sen). FY21: 8 sen (FY20: 14 sen).

QoQ. Revenue increased by 1.1x due to low base in 3Q21 as a result of c.2.5 months of production halt during the quarter. Consequently, core PATAMI increased by 1.3x.

YoY. Revenue decreased by -21.4% due to the deferment of goods shipment by customers as a result of escalated shipping charges. Consequently, core PATAMI decreased by -33.1% in line with the decline in revenue.

YTD. Revenue decreased by -19.6% due to longer period of production halt of c.4.5 months (vs. 2 months SPLY). Core PATAMI declined by -51.8% as a result of revenue decline, higher raw material costs and lower production efficiency achieved.

Outlook. We are not overly concerned with the slight results miss as it was mainly due to the deferment of product shipment which delayed part of the revenue recognition to the following quarter. Furthermore, we also expect some of the key challenges facing Lii Hen to start easing soon. In particular, the intake of foreign labour will alleviate the manpower shortage issue faced by the group, while the easing of supply chain pressure (the decline in Global Supply Chain Pressures Index to 4.25 in Dec 2021 from 4.34 in Nov 2021 points to some tentative signs of easing) will provide some relief to the inflationary pressure on raw material costs. In addition, with the anticipated rate hike, the group will benefit from higher interest income from its net cash position of RM127.7m.

Forecast. We increase our FY22 earnings forecast by 6.3% to account for the deferment in product shipment from 4Q21.

Maintain BUY, TP: RM3.90. Despite the increase in FY22 EPS, we kept our TP largely unchanged as the increase in EPS is mainly due to the timing of revenue recognition. Our TP of RM3.90 (from RM3.88) is based on 8.5x FY22 EPS of 46.1 sen. We remain optimistic on the prospects of the company supported by its robust export demand as well as the likely easing of some of the key challenges faced by the group as highlighted above. Furthermore, the group also has a healthy balance sheet with net cash of RM127.7m (or NCPS of 71sen) and a decent projected FY22 dividend yield of 5.5%.

Source: Hong Leong Investment Bank Research - 22 Feb 2022