LIIHEN - Time to Shine II

FB Post on 23 May 2016 in Gainvestor Page

This is an update on LIIHEN after it released its Annual Report 2015 and also Q1 Report. On 23 May 2016, i had posted a facebook comment on LIIHEN after it announced its Q1 result. In the next week, the price gapped up and the gap became a very important support. LIIHEN formed an inverted head and shoulder which was a bullish reversal pattern. 2.5 is a breakout point for the inverted head and shoulder and furthermore 2.6 provided a very comfortable support. By looking at the closing price today (30 May 2016), it is 2.77. Based on technical chart, there are still rooms for the upside. From time to time, i will post my market ideas in my FB. Everyone is welcomed to join and share your ideas and opinions.

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1. Fundamental Analysis:

Revenue and Net Profit from 2011 to 2016[1]

Let's look at the Annual Report which was released on 27 April 2016[1]. Revenue and net profit had been growing. The chart is in yellow as the the result only contains Q1 result. With the current USD strengthening, 2016 should be a favourable year for export driven stocks. 

In the Chairman Statement in the Annual Report 2015, he mentioned that the revenue increased from 2014 to 2015 is mainly because of large volume orders from Asian (Malaysia) and US Market and next is stronger USD (RM3.24 to RM3.87 - appreciated by 19.4%). This is supported by the note in the AR. The revenue in the Asian market increased by 73% (RM25,990k to RM45,085k), while US market increased by 34% (RM318,817k to RM426,742k). 

The Chairman highlighted 3 global growth issues in 2016, i) China economy slowdown, ii) Lower prices for energy and other commodities, iii) Gradual tightening in monetary policy in US. I do not know how you guys look at this, but i sense this as good news. China economy slow down. Mostly the customers of LIIHEN are from US (78%). So, even if China slowdown, it will have minimal impact on LIIHEN's business model. Lower prices for energy and other commodities. The transportation fee to US will be cheaper and also one of the raw material for furniture is woods. The raw material will be cheaper. And next is the monetary policy in US, if US increase the interest rate, USD will be stronger which will in turn be favourable to LIIHEN. LIIHEN had US Trade Receivables amounting to RM28,832k and cash in US amounting to RM44,753k. Anyhow i see it, it will be good for LIIHEN.

In the latest report from Wall Street Journal, US new home sales rise at fastest pace in eight years. Purchases of new, single family homes jump 16.6% in April from a month[4]. This is indeed a good news. Like i mentioned before in previous LIIHEN post, if the house sales increased, next the consumer will be aiming to buy furnitures, and this will definitely benefit the local furniture companies who doing exports to US, such as LIIHEN and POHUAT. To emphasize, US is still remains as the biggest revenue generator for LIIHEN.

On 28 January 2016, LIIHEN acquired 60% of a new company, LSG Furniture Sdn Bhd. The company is involved primarily in the manufacturing of upholstery furniture products. This corporate exercise is targeted to explore the high growth Asia market. Upholstery is the work of providing furniture, especially seats, with padding, springs, webbing, and fabric or leather covers[3]. Mr Chairman did mentioned the domestic issues. Shortage of manpower is the main issue but will be tackled by the machines and automation processes. Automation process is expect to enhance the productivity and efficiency.

In the top 30 shareholders, our local value investor, Mr Koon Yew Yin had increased his shares from 3.35 Mil to 21.54 Mil. I know that lately Mr Koon Yew Yin had been in the news with his active involvement FLBHD and VS. LIIHEN should be his darling stock, as this company is never shy at giving dividends to its shareholders. There are 2 new foreign fund houses, UOB Kay Hian and Deutsche Bank AG London, joining the existing foreign fund house Deutsche Bank Suisse SA. With such strong fundamentals, there is no surprise more foreign funds will be investing in LIIHEN.

Q1 2016 Result:

LetRevenue and Net Profit by Quarter

Revenue and Net Profit for LIIHEN had been consistently growing[2]. Revenue had been growing y-o-y 48% and q-o-q 9% while net profit was 96% and 15% respectively. Do notice lately the export companies all having foreign exchange loss due to RM had been stronger if compared to previous Quarter. So this foreign exchange loss is a figure that we should be taken into consideration also. 

Foreign Exchange Loss in Q1 Report [2]

If compared to Q4 2015, the USD/RM had been weakened by 2.2%, from average of 4.28 to 4.19. In the Annual Report, in the foreign currency risk sensitivity analysis, if USD/MYR weakened by 5%, the estimated incurred cost is -RM3,608k. However, in Q1, the USD/MYR is weakened by 2.2%, the realized foreign exchange loss is already -RM5,009k. If we have another QR, we might be able to calculate our own foreign exchange loss/gain, by using cross multiplication.

2. Technical Analysis:

LIIHEN Daily Chart

The next support should be 2.6, after announcing the Q1 result, it gapped up. Noticed that the support had been tested but after that, it went up. The next resistances should be 2.80 and 3.00. Do notice for inverted head and shoulder, once it had breakthrough, normally the breakout point can be another support for us. The volume had been active, with healthy MACD and RSI seems to be slightly overbought. Once break the resistance, the price might retrace and after that, sky is the limit~

Summary:

LIIHEN had been the strongest export oriented stocks, if compared to other export stocks. A short update on LIIHEN:

- Revenue and net profit had been consistently increasing throughout the year.

- Net cash company with RM81,929k and net cash per share of 0.3960. Mostly trade receivables and cash is in USD.

- Giving out dividends every Quarter, with Dividend Yield of 5.54%.
- Dividend EX on 10 June and 8 July with 4 cents respectively.

- Emergence of a few new foreign fund houses and Mr Koon Yew Yin increased his stakes in LIIHEN.
- Always take note at the foreign exchange loss or gain for other export oriented stocks.

- Firm support at 2.60 and 2 immediate resistances at 2.80 and 3.00 respectively. If breach 3.00, then sky is the limit.

Gainvestor Mid Term TP: 3.00 (maintain)
Gainvestor Long Term TP: 5.00 (maintain)

Let's Ride the Wind and Gainvest

Gainvestor 10sai

31 May 2016
12.10pm

Sources:

[1]: LIIHEN Annual Report 2015: http://www.bursamalaysia.com/market/listed-companies/company-announcements/5071437

[2]: LIIHEN Q1 2016: http://www.bursamalaysia.com/market/listed-companies/company-announcements/5098413

[3]: Upholstery Furniture: http://www.homedit.com/what-is-upholstered-furniture/napoleon-upholstered-chair/

[4]: US New Home Sales Rise at Fastest Pace in Eight Years: http://www.wsj.com/articles/u-s-new-home-sales-at-fastest-pace-in-eight-years-during-april-1464098576