Liihen oh Liihen

I personally have Liihen. Hold due to attractive 7.2% dividend yield. Buy at own risk.

RM strengthening might affect Liihen business.

Advice to hold more cash on current market situation.

Results

Above expectation. 9M17 core net profit of RM62.3m (+12.7%) came in above expectation, accounting for 82% of our full-year forecast.

Deviations

Higher-than-expected sales volume.

Dividend

Declared 3rd interim DPS of 4sen (ex-date: 12 Dec 2017) bringing YTD DPS to 12sen. For the full-year, we project a total DPS of 26 sen, translating to dividend yield of 7.2%

Highlights

QoQ: Despite the stronger MYR against the US$ (3Q17: RM4.25/US$; 2Q17: RM4.32/US$), 3Q17 revenue rose by 12% to RM190.0m, while core net profit rose by 2.5% to RM19.9m mainly attributable to higher sales volume.
YoY: 3Q17 core net profit increased by 31.1% to RM19.9m (from RM15.2m in 3Q16), mainly attributed to i) higher production volume, ii) contribution from the new subsidiary (LGS Sdn Bhd, which only started contributing to Lii Hen’s bottomline since FY17), and iii) weaker MYR against the US$ (3Q17: RM4.25/US$; 3Q16: RM4.04/US$).
YTD: 9M17 core earnings rose 12.7% to RM62.3.m, due to the increased sales volume in existing and new products (upholstery sofa).
While labour shortage and rising raw material will remain an issue to manufacturing players including Lii Hen, we are confident that Lii Hen would be able to pull through with management’s relentless efforts in adopting effective cost management.
Outlook: We remain positive on Lii Hen’s earnings outlook, as the group continuously focuses on i) diversifying its product range to strengthen its market position, ii) adopting effective cost management and iii) looking for automation opportunities for its production lines.

Risks

(1) Escalating raw material price
(2) High dependency on foreign workers; and
(3) Stronger-than-expected MYR (against the US$).

Forecasts

We raise our FY17 net profit by 5.3% to account for a 2.0% higher production volume assumption. Maintain our FY18-19 earnings forecast.

Rating

BUY (↔)

We continue to like Lii Hen due to its strong balance sheet (net cash per share 44.9 sen as at 30 Sept 17), generous dividend payout (dividend yield of 6.4%) and ongoing efforts to adopt effective cost management. Moreover, we expect stable growth in the global furniture market due to growing real estate industry and increasing number of global retail stores.