BCT Asia advisory

1Q FYE JUN 2019 RESULTS REPORT 28 November 2018

Name of PLC: Latitude Tree Holdings Berhad (LTHB) PLC Website: www.lattree.com
Business Summary : Manufacturing of wooden furniture products and components
Top Three Shareholders: Lin family 36.9%
Yek Siew Liong 15.1%
Samarang Ucits - Samarang Asian Prosperity 7.9%
Market / Sector: Consumer Stock Code: 7006
Bloomberg Ticker: LAT:MK
Market Capitalisation: RM 375.2m Recommendation: BUY
Target Price: RM 5.50 Expected Capital Gain: 42.1%
Expected Div Yield: 1.6%
Current Price: RM 3.87 Expected Total Return: 43.7%

Analyst: Lim Boon Ngee | Tel: +603 2163 3200; Email: bnlim@bcta.com.my

Key Stock Statistics 2017 2018 2019F 2020F 1. 1Q FY19 Results Highlight
EPS (sen) 71.0 12.5 55.0 61.7
P/E (x) 5.4 31.1 7.0 6.3 1Q FY19 1Q FY18 Chg
EPS ex-EI (sen) 71.0 26.8 55.0 61.7
RMm RMm %
P/E ex-EI (x) 5.4 14.4 7.0 6.3
Net Dividend/Share (sen) 12.0 6.0 6.0 6.0 Revenue 214.19 216.78 (1.2)
NTA/Share (RM) 5.77 5.63 6.12 6.68 Operating Profit 15.94 18.28 (12.8)
Book Value/Share (RM) 5.77 5.63 6.12 6.68 Finance cost (0.84) (0.71) 19.1
Issued Capital (mil shares) 97.2 96.9 96.9 96.9 EI
52-weeks Share Price Range (RM) 3.00 - 4.53 Pre-tax Profit 15.09 17.57 (14.1)
Estimated free float 24% Net Profit 13.13 15.41 (14.8)
Average volume (shares) 51,770 Operating Margin (%) 7.4 8.4
Pre-tax Margin (%) 7.0 8.1
Per Share Data 2017 2018 2019F 2020F
Net-Margin (%) 6.1 7.1
Year-end 30 Jun
Book Value/Share (RM) 5.77 5.63 6.12 6.68
Operating CF/Share (sen) 47.5 13.4 91.5 99.5 • Turnover was flat at RM214.2m in 1QFY19.
EPS (sen) 71.0 12.5 55.0 61.7 However, both PBT and net profit declined by
Net Dividend/Share (sen) 12.0 6.0 6.0 6.0 14% to RM15.09m and RM13.13m respectively.
P/E (x) 5.4 31.1 7.0 6.3
P/Cash Flow (x) 8.1 28.9 4.2 3.9 • The weaker profitability was largely contributed
P/Book Value (x) 0.7 0.7 0.6 0.6 by the softening of the USD against RM in the
Dividend Yield (%) 3.1 1.6 1.6 1.6 period. Sales in USD received by furniture plants
Payout Ratio (%) 16.9 48.2 10.9 9.7 increased marginally by USD1.1m to around
ROE (%) 13.2 4.7 9.4 9.6 USD48m in 1QFY19.
Net Gearing (%) (26.7) (24.2) (27.8) (34.9)
• Lower profits were also affected by higher sales
P&L Analysis (RM mil) 2017 2018 2019F 2020F
of lower-margin products, lower productivity
Revenue 786.02 752.83 789.98 829.19
due to the production of new models, and higher
EBITDA 109.36 53.92 85.54 93.67
labour costs in Vietnam plants arising from an
Depreciation & amort (20.11) (17.95) (19.29) (20.00)
increase in minimum wages.
Net interest income (0.91) (1.25) (1.19) (0.71)
EI * - (13.95) - -
Pre-tax Profit 88.35 20.78 65.06 72.97
Net Profit 69.07 12.08 53.35 59.83
EBITDA Margin (%) 13.9 7.2 10.8 11.3
Pre-tax Margin (%) 11.2 2.8 8.2 8.8
Net-Margin (%) 8.8 1.6 6.8 7.2
* Fire incident

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• In terms of geographical breakdown, turnover from the Malaysia operations (furniture making operation,
upstream sawn rubberwood and panel lamination board factories) increased by 7.5% to RM39.09m in
1QFY19. This was due to increased contribution from the panel lamination board segment. The Malaysia
operations recorded a lower PBT of RM1.89m (1QFY19) as compared with RM2.26m (1QFY18).
However, it has made steady progress on a sequential basis as compared with a pretax loss of RM1.84m
(4QFY18) and a small PBT of RM0.69m (3QFY18).

• Its Vietnam operations experienced a small 2.6% decline in turnover to RM167.13m in 1QFY19.
Although PBT declined by 36.2% to RM9.34m (1QFY19), an improving profit trend was also witnessed
in 1QFY19 sequentially in comparison with PBT of RM3.18m and RM2.28m in 3QFY18 and 4QFY18
respectively.

• The overall lower profit performance in both Malaysia and Vietnam operations was due the weakening of
USD against RM, higher labour costs, higher sales of lower-margin products.

2. Earnings Outlook

• LTHB is involved in the manufacturing of wooden furniture products and components, in particular high
quality rubberwood furniture targeted for the export markets. About 99% of its revenue is derived from
export markets, primarily the US, Canada, Europe, South Africa, Australia and the Middle East.

• With RM currently depreciating against USD, the easing of average cost of raw materials especially wet
sawn rubberwood and improved furniture orders, its profitability is expected to improve in FY19.

• There is no major capacity expansion of the furniture making operations in both Malaysia and Vietnam
as they are currently running at an optimum level based on the current demand trend. The competition in
Vietnam has eased as some of the buyers have returned to LTHB for its product and service quality,
service reliability and design capability, key factors underscoring the strengths of LTHB in Vietnam. The
strategy is to optimise the production output to cater for small quantity high-value products, targeting at
e-commerce and smaller retailers. To cater for an increasing demand for upholstery products, LTHB is
setting up a new upholstery facility. In addition, the automation of existing production lines is an on-
going upgrading of machinery to improve efficiency and to reduce reliance of labour.

• The contribution from non-furniture division namely panel board lamination, furniture components and
upstream activities is expected to increase to 10% of group revenue in FY19. It plans to set up a new
lamination line of its panel board lamination plant to meet increasing demand from overseas customers.

3. Valuation and Recommendation

• On an annualised basis, 1QFY19’s net profit is in line with our earnings forecast for FY19.

• Based on our EPS forecast of 55.0 sen for FY19, the stock is currently trading at a P/E of 7.0x for FY19.
Maintain Buy with a target price of RM5.50 upon ascribing an unchanged target P/E of 10x on FY19
EPS. The stock is currently trading below its book value of RM5.84 as at 1QFY19 apart from a strong
balance sheet position with net cash of RM1.35/share.

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Share price chart of LTHB

Disclosures/Disclaimer

Investment ratings:
Buy (generally >10% upside over the next 12 months)
Hold (generally negative 10% downside to positive 10% upside over the next 12 months)
Sell (generally >10% downside over the next 12 months)

This report has been prepared by BCT Asia Advisory Sdn Bhd pursuant to the Mid and Small Cap Research Scheme
(“MidS”) administered by Bursa Malaysia Berhad. This report has been produced independent of any influence
from Bursa Malaysia Berhad or the subject company. Bursa Malaysia Berhad and its group of companies disclaim
any and all liability, howsoever arising, out of or in relation to the administration of MidS and/or this report.

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