THE persistent weakening of the ringgit vis-à-vis the USD augurs well for domestic exporters — enhancing their earnings and competitiveness against global players.
The ringgit, which fell 6.3% against the greenback last year, continued to slide amidst political uncertainties and external headwinds such as weak commodity prices and the impending US interest rate hike. Year-to-date, the ringgit has depreciated by 17.2% to 4.22, providing another boost to exporters.
Furniture makers, especially those that are export-oriented, are one of the beneficiaries of the stronger USD. This is due to the fact that most of their sales are denominated in USD, while input costs are ringgit-based.
Latitude Tree (Fundamental: 2.5/3, Valuation: 1.8/3), one of the largest rubberwood furniture manufacturers and exporters in Malaysia and Vietnam, was first featured by InsiderAsia on October 30, 2014. Since then, its share price has more than doubled to close at RM7.40 yesterday.
However, the stock is still inexpensive, trading at a trailing 12-month PE of 9.8 times — low relative to its earnings growth of 37.2% for 9MFYJune2015 and prospective double-digit growth for FY2016. By comparison, Poh Huat is trading at 10.0 times, Lii Hen at 11.0 times and Homeritz at 12.4 times.
Latitude Tree exports over 99% of its products with the US taking more than 90% of its sales. Prospects for the company remain favourable as the US housing market continues to show signs of recovery. For FY2014, sales surged 31.9% to RM651.0 million, while pre-tax profit doubled to RM71.9 million. Despite achieving record-high sales and profits, Latitude Tree does not rest on its laurels. The company further expanded its upstream activities by acquiring a wood lamination factory for RM22 million.
Additionally, it plans to spend RM40 million to increase the level of automation, thereby reducing reliance on low-skilled workers. With net cash of RM45.3 million and strong operating cashflow, funding should not be an issue.
This article first appeared in digitaledge Daily, on August 26, 2015.
