For whatever the reason someone else is selling, I think it's a good opportunity for others. Assuming everything just remains the same. Don't forget it's still a EPS 70+ cents company with a NAPS of 5.69 How many companies in the entire bursa that has low PE and trading price that's below NAPS?
Other people may sell because they have another target that they believe they could push up easier or whatever... but it doesn't mean that Latitude is a bad company by itself. Especially, if you're not chasing after quick gains.
Financial/Fundamental analysis YoY the 1st Q 2018 vs 1st Q 2017 will most likely be on the positive upside, supported by a few facts
1) YoY forex exchange rate is more favourable. 2) New sawmill expansion that's just completed construction in July 2017 3) New production line for the low volume, high margin products
Confirmed happened 1) is already a fact that has happened, just on forex itself, it's ~4-5% more favourable YoY.
Most likely will happen 2) Expanding the sawmill would be a relatively low risk to reward activity, I would say the benefit from here will probably reflect in an additional 1% margin increase on the lowest side of things.
3) New line for low volume higher margin products, this area would be harder to estimate the impact, until we see the next q result, but again, the risk to reward ratio is again most likely on the success side, since the variables and risks of operating a new line would be quite easily quantified by the management themselves. (Things like, do we have customer demand for such products? Do our existing customer want something on a lower volume? Cost of operating a new dedicated line vs cost of sales, etc is within normal business proposal/control)
Shareholder analysis. From the latest AR 2017, vs AR 2016 In terms of top 30 shareholding, even with KYY selling out half of his known holdings, (about 3 millions sold) the total shares held by the top 30 shareholders actually increased (slightly about 1%) This means that an exit of a big shareholder is replaced by an entry of another big shareholder, (there is 2 new top 30 shareholders, which is from European funds) So all in, there is still big fish who is willing to buy up Latitude too. Shares is not being sold from KYY to small fishes which may have weaker holding power if that's your concerns.
Again, this is a good opportunity to buy, I believe. Certainly way oversold at this price level.. don't forget Poh Huat, Lii Hen they all are trading at near their 52 week high.
2) Expanding the sawmill would be a relatively low risk to reward activity, I would say the benefit from here will probably reflect in an additional 1% margin increase on the lowest side of things.
>> Let's talk about their sawmill business a bit more. In the latest AR result, they mentioned 40-55% of their COS is spent on wood/wood based products.
You can take their annual COS * 0.5 and they're spending 327 million on wood itself.
Assuming the profit margin of the sawmill that supply Latitud last time is just a low 4% margin...
That's 13 million of profit that can potentially be added to Latitud's net profit per year! If all of Latitud's wood purchase is routed back to the internal sawmill at 4% profit margin. Even if half of it is realized only, that's still 6-7 million of profit per annum, which increases EPS per year by 10% !!!
Latitude offers very good value at these levels (@ ~0.75X P/BV while earning ROE >10%). Indeed for those who cannot find good opportunities in the market, this might be a good buy. It would be the best wooden furniture company stock at least from a value proposition.
I personally can find better opportunities in the market (surer bet + better payoff profile), though Latitude is definitely on my "strong" watchlist.
However, be very mindful that Latitude is subject to FX movement highly. If the Ringgit continues strengthening expect profitability to decline.
I think a lot investors are just worried about the strengthening of Ringgit ~oil price on an uptrend. Going to wait for quarter results for top up, want to see whether did Latitud benefit from the hurricane in US, rubberwood prices and results of their higher margin products. Anyways, if we can predict the FX, we might else well play FOREX.
@dunspace, Latitud is actually leveraged on the FX. This is because every 1% increase/decrease in MYR will result in some 6-7% loss/gain in the bottomline. So it's a very leveraged play, and best to stay away if you aren't sure about how to structure this "bet". Mind you, the MYR slid badly, it's hard to imagine things getting worse from here on out. Heck, YTD we have already recovered.
Still if MYR stays at RM4.00-RM4.30 Latitud will be a good buy. But if we go back to under RM4 then Latitud might face issues. I feel more comfortable with a larger margin of safety buying a net importer rather (such as Tan Chong, UMW etc).
I am just stating that if anyone is really sure about what's the exchange rate going to be, you might else well use your expertise in FOREX, better gains for your predictions. I am well aware that I myself cannot predict the exchange rate, therefore, might else well look at the current numbers
Latitude is facing stiff competition from China manufacturers especially those China furniture makers with big factories in Vietnam. Latitude has to compete for orders, materials and workers with those China furniture makers in Vietnam. China factories are snatching/stealing capable leaders/supervisors of Latitude beside orders and materials. Going forward, FY2018 is a tough and challenging year for Latitude as Latitude has to compete with very big and rich China manufacturers.
Stock price are supported by growth and/or dividend. Latitute has neither. Forward net profit is expected to be lower YoY and dividend yield is much lower compare to other peers like Liihen, Pohuat, Jaycorp.
New substantial shareholder, it's a Europe based fund, with USD 366million in fund size. Samarang probably buying it off KYY, once he's finally sold off all his remaining shares, there'll be a much better chance for the share to be reflective of its value. Probably we still need to wait for 1-2 million more of volume before KYY and co sold out entirely.
If u check Semarang Asian prosperity fund 2015 report this fund bought Padini and sceintex.too More than 50% fund allocated in Japan and more 30%in Vietnam only 5% in Malaysia achieved 23%annual return yearly
Latitud is the typical value investor value trap. At its cyclical peak, latitud never traded more than 10x PE. Now the business cycle has probably gone downhill, will latitud intrinsic value becomes realized? Never.
a company that pays 15% of its profits as a dividend means it can pay a lot more without any stress. revenue growth of 6% YoY and 15.2% QoQ definitely means its growing it business. dividend increase from 6.3 cents a year to 12 cents a year? 200 million war chest to help it compete against china competitors? definite moat business. And you think its a value trap? Please elaborate.
I like their annual report best: with respect to investor relations, 10 analysts came to visit us. share movements should be left to market forces, it has no correlation with our business.
a smart investor should ignore historical earnings and avoid extrapolation to the future. looking at the macro variables, MYR has strengthened substantially in the last few months. this factor alone should hastened reversion to mean where latitud's peak earnings is past its glory days. as an investor, are you going to ignore the impact of currency movement on latitud's business? one of the typical characteristic of value trap is a company which its earnings is in decline.
many analysts have pointed out the large cash hoard in the companys balance sheet. and when you compute the PE ex cash, latitud is going to look incredibly cheap. if i were invested in latitud, i would like to see the company returning the cash to shareholders or do share buyback as the current cash level signifies over-capitalization.
I disagree that historical earnings should be ignored entirely. The historical earnings is a short summary of their customer profiles and production capability, and the customer relationships which although may have changed due to a new competitor giving a cheaper price, but the relationship can be potentially reactivated again if the circumstances is valid.
Past earning also reflects the income generation capacity. A company that does 10m in sales cannot realistically ramp up to 50m sales in 1 quarter, but a company that did make 50m in sales, while dropping to 40m still have the base production capability intact to go back up to 50m.
Latitude uses a sort of natural hedge where they pay their vendor in USD as well, so the forex drop will not hurt as much vs others.
I think the overall problem with Lat is, their chairman/management DO NOT focus on the share price performance.. This.. can be said as a positive thing, as I'm sure you know there's a lot of directors who will actively try to manipulate share prices to their own profit. But the bad thing is, they let it drop down too much...
A sharebuy back at <4.80 is actually a WIN WIN for the company, shareholder, paying 4.80 for a NAPS of 5.8+ will immediately yield a profit, and increases the average NAPS
I think the government move to block rubber wood export hurt Lat's strategy at buying a lumber mill in msia, as their major usage of lumber is from their Vietnam factory... while unfortunate, you can't entirely say that their initial decision is wrong. Imagine if all their vietnam lumber is supplied internally instead, that could've improved profit margin by an important 1-2% if not more.
It's how they respond to all of these challenges that determine if the management is good or not. And in the latest q result, we already did see a significant improvement in the revenue of their Msian sales, probably some startup issues on a new project/ramp up that impacted their initial Msian operations net profit.
To me their ability to ramp up sales from their Msian factory indicates there's still some 'moat' available to them, their msian sales should tap into their Msian lumber mill, which we should be able to see the impact on their coming Q results..
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
Posted by lloydlim > 2017-10-30 19:29 | Report Abuse