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Alpha Trader first highlighted Focus Lumber Bhd in Jan 2022 when the stock was trading at RM0.70 (adjusted for bonus issue). 

Therefore, with the dividend of RM0.09 declared in 2022, the stock essentially has only risen 3.2% in 12 months. We will revisit the stock to see that the fundamentals have improved significantly over last 12 months and why Focus Lumber Berhad (FLB) is underpriced and under appreciated!

POINTS OF INTEREST

1) NET CASH OF RM138 MILLION​

With a net cash position of RM138 million or RM0.60 per share with no bank borrowings and a market cap of only RM145  million shows how mispriced this stock really is! Essentially what this means is, one gets to own the company for only RM0.03 per share at the current price for a company that has a trailing EPS of RM0.18!

2) LOW PE RATIO AND HIGH DIVIDEND YIELD

Even without factoring the net cash position, Focus Lumber is trading at a very low PER of only 3.4 times and a dividend yield of 7% (Based on 2022 dividends paid and adjusted for bonus issue). It is also trading below its NTA of RM0.92 per share.

3) TECHNICALS ARE IMPROVING

From the Daily chart we see a clear pivot support at RM0.60, which also makes sense since this s the net cash level of the company. The downtrend line currently sits at the RM0.67 level, which if broken should see a test of 1st Resistance of RM0.75 and a retest of 2022 high at RM0.84. Further up we have the all-time highs of RM1.54 which hit in 2016 as an ultimate target!

4) LUMBER PRICES ARE BULLISH AGAIN

Lumber prices took a big dip in the second half of 2022 due to the overblown fears of an economic slowdown which saw the price drop from a high of USD1,477 per 1000 board feet feet to a low of USD362 per 1,000 board feet. The price has made a good recovery since the start of 2023 with a rise of 28% year to date (currently trading at USD500 per 1,000 board feet) and a huge 8% rise in the last 2 days alone. Lumber is the best performing commodity year-to-date on the US commodity exchanges.

However, it should be noted that despite the drop in lumber prices in Q3 2022, FLB still managed to record near all time profits due to the company’s competent forward selling policies.

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5) THE WORST HAS BEEN PRICED IN

The stock price has been underperforming due to overdone fears of a major recession and slowdown in consumer spending in the US market. FLB derives 60% of its revenue in the USfrom the recreational vehicles sector. With the US stock market having a promising start in 2023, this will bode well for consumer confidence and (albeit the dip in profit for the last quarter of 2022 is expected), earnings for FLB in 2023 is expected to remain strong. 

CONCLUSION

Given the solid fundamentals and evident mispricings of the market for Focus Lumber Berhad, I believe it it is only a matter of time before we see a massive re-rating and price explosion for the stock! It is amazing that we get to own a very profitable company with good dividend yield and selling at just above its net cash position! I expect  FLB to be a multi bagger stocks in the years to come!

Disclaimer: This blog is created for sharing of trading ideas only. It is not in any way or form meant to be an inducement or recommendation to buy or sell any stocks. Consult your financial consultant before making any financial investments.