Lee Swee Kiat Group is the largest natural latex manufacturer in Malaysia with annual c.7,000 tonnes of centrifuged latex production capacity. It produces both finished mattresses, which are sold under its own brands (Napure & Englander), as well as semi-finished goods (latex foam) for export (24% of FY22 revenue). In the finished mattress segment, it also produces spring-based mattresses with latex padding. It has two manufacturing facilities of 440,000 sq ft area housing six latex production lines and 350 employees. It has both local and export sales to countries including Korea, China, Canada, United States, Japan as well as Europe etc.
Diversified sales channels. It has diversified sales channels locally including business-to-consumer or B2C, wholesales, and rental business model through Cuckoo (started since FY21). It also operates a total of 16 sales outlets consisting of International Brands Gallery (IBG) retail stores and mattress factory outlet stores.
Expecting recovery in export sales. The demand of global latex mattress market is anticipated to grow by CAGR of 7% from 2022 to 2032 driven by consumers’ growing preference for a luxurious lifestyle that caters to better sleeping products (Future Market Insights). As Malaysia is the fourth largest natural latex producer in the world, LSK is expected to benefit directly from the increasing market demand with its strategic location in Malaysia. The group is expecting its export sales of latex foam to recover in FY23F with the decline in freight costs. It is also looking to ramp up its exports sales by participating in overseas marketing events or exhibitions as the borders have opened. Management is currently in talks with several new export clients.
Local sales to be propelled further. Its domestic sales should continue to drive its strong sales momentum, premised on higher mattress demand from more vacant possession of properties seen in Malaysia. LSK has been collaborating with Cuckoo Malaysia for the rental model since FY21. Since then, the collaboration has been growing well from 7k units sold in FY21 to 12k units sold in FY22 as it offers affordability to its untapped middle income customers and increases awareness of mattress quality, especially for back/spine purposes. Going forward, LSK is targeting sales of 20k units in FY23F with a wider product range and marketing strategy. We also expect higher profit margin for Cuckoo sales due to accrual cost accounting standard where the product cost is only charged out in the first year of product delivery.
Strong net cash position with sustainable dividend policy. As at 31 Dec 2022, LSK has a net cash position of 10 sen per share. The group has a dividend policy of minimum 30% of PAT. In the past five years, its dividend payout ratio ranged from 41-65%
Results highlights. FY22 revenue and net profit increased 23.3% and 70% YoY, attributable to improved sales from the domestic market with a broad based improvement in various sales channels.
Strong net cash position. The group has a healthy balance sheet with net cash of MYR16.8m or MYR0.10 per share as at FY22. We expect LSK to stay in a net cash position for FY23F-24F.
ROE. Over the past three years, its ROE ranged between 11.5% and 19.7%. With the expected rise in FY23F-24F earnings, group ROE should also increase gradually.
Dividends. The group has also consistently paid dividends every year since its IPO. In the past five years, LSK’s dividend payout ratio ranged between 41% and 65%. We expect it to continue paying dividend of at least 40% of its PATAMI going forward, which translates to over 4% of dividend yield.
Management. LSK is helmed by Managing Director cum CFO Dato’ Eric Lee Kong Sim, who is responsible for overseeing the overall operational function of the group. He is supported by the senior management team, comprising individuals with outstanding professional qualifications and over 10 years of experience in their respective fields.
Fair value of MYR1-1.35. We like the stock for its leading market position in the latex bedding industry. LSK’s business will benefit from strong demand growth for high-quality mattresses from more domestic property vacant possession, while its export latex business is expected to benefit from increasing international marketing activities as borders have opened. Based on an ascribed P/E of 10-13x on 2024F earnings, we derive a fair value range of MYR1-1.35. We believe that our valuation is fair given it is still at a discount to the local consumer discretionary sector’s 2-year forward P/E of 25x.
Key risks include the inability to secure new contracts, non-continual of Cuckoo collaboration, drop in foreign demand due to lower consumer spending, human capital scarcity, and limited brand presence.
Source: RHB Securities Research - 16 May 2023
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one of those rare times I agree with 3iii that this is a good company to invest.
I dun have any shares in this company though.
A good company with overpriced products.
However product is very good so I bought Napure even though I think its damn expensive.
I cannot find any other alternative product just as good,
so no choice at whatever price company wants, tutup dua mata and just buy.
:)
2023-05-17 06:49
Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$â¬Â£Â¥
ROE - 5 Yr Avg14.12
ROE - Latest FY12.26
Book Value/Share (RM) 0.38
Latest P/B 1.91
2023-05-16 22:23