Latitude: Probably Deeply Undervalued

Latitude Tree FY14Q2 Financial Result

LATITUD	FY14Q2	FY14Q1	FY13Q4	FY13Q3	FY13Q2
Revenue	184.4	177.1	124.4	107.2	122.4
PBT	26.0	20.7	9.4	5.8	8.3
PBT%	14.1	11.7	7.6	5.4	6.8
PAT	19.0	14.6	5.9	4.3	5.1
MAS Rev	31.6	28.9	23.2	22.5	25.9
MAS PBT	2.1	1.2	-1.0	-0.7	-1.2
VIET Rev	147.7	142.2	96.1	79.4	91.6
VIET PBT	24.9	20.0	12.0	8.4	10.1
THAI Rev	5.1	6.0	5.2	5.2	4.9
THAI PBT	-0.3	0.02	-0.5	-0.7	-0.3
Total Equity	270.1	249.8	232.1	222.7	219.8
Total Assets	530.1	478.6	449.8	408.5	417.2
Trade Receivables	58.2	55.4	33.8	38.4	35.5
Inventories	95.4	81.8	89.7	73.0	76.4
Cash	147.4	116.1	96.1	65.8	71.1
Total Liabilities	205.5	179.3	173.4	144.7	158.3
Trade Payables	95.7	85.1	72.9	52.3	48.8
ST Borrowings	95.5	78.9	85.1	75.5	89.1
LT Borrowings	11.1	12.3	13.5	15.3	17.9
Net Cash Flow	48.2	14.6	41.9	12.2	17.9
Operation	42.2	20.3	52.9	30.6	16.4
Investment	-4.1	-1.2	-3.1	-2.4	-2.9
Financing	5.0	-8.6	-7.4	-14.8	5.2
EPS	19.52	15.02	6.12	4.43	5.24
NTA	2.78	2.57	2.39	2.29	2.26
Net D/E Ratio	NC	NC	0.01	0.11	0.16

The share price of Latitude fell 3 days in a row before the announcement of its FY14Q2 result, I'm a bit worried that there will be a bad surprise like Zhulian.

Now it seems like the selling pressure may be due to recent strange phenomenon in which share price will NOT move up even though the company produces good financial result. 

Many people may have bought Latitude in anticipation of an immediate trading gain after its result announcement. When they feel that this is unlikely to happen, they sell first.

Now its result is out, and it is a magnificent result. However, it is also widely expected as well. Where will its share price head afterwards? 

Latitude's share price has appreciated quite a lot after the company made a special announcement on LTIG's financial result in early Feb, are all the expected goods news already factored in the current share price?

Will it follow the recent "strange phenomenon"?

For FY14Q2, even though revenue grows a mere 4% to RM184.4mil, net profit attributable to shareholders jumps 30% to RM19mil, not far away from RM20mil I guesstimated earlier.

At 1HFY14, revenue of RM361.5mil is 38% higher than RM262.1mil of corresponding period last year, while net profit to shareholders soars 138% from RM14.1mil to RM33.6mil.

If we look at the table above, this is mainly due to its Vietnam operation which has USD1mil increase in monthly capacity since last year.

The vast improvement in Vietnam production is due to higher orders, higher production, higher margin & selling price of certain products, and strengthening of USD against RM by 4.3% in the past 6 months.

This is helped by the recovery of economy and house sales in US where Latitude exports 99% of its furniture to.

After scaling down the operation, its Malaysia production is also profitable for 2 quarters running supported by higher revenue.

Latitude has completed the acquisition of its remaining shares in Vietnam operation (LTIG) on 23 Jan 2014, thus it will start to enjoy full contribution from LTIG starting from its next quarter's result.

Including the non-controlling interest, Latitude's profit after tax in FY14Q2 is RM23.6mil.

If we annualize 1H14 net profit to shareholders of RM33.6mil, Latitude may give a full year net profit of RM67mil. This does not even include future contribution from 100% LTIG acquisition!

However, it is also not clear whether Latitude can sustain its revenue and profit throughout the year as from historical point of view, its revenue and especially net profit fluctuate a lot.

Some may argue that Latitude's earning is affected by seasonality, but its current 2nd quarter is usually not a strong quarter and it still can produce great results.

I'll assume a conservatively-estimated net profit of RM60mil for Latitude in FY14 that ends in June 14. With paid up shares of 97.2mil, projected EPS will be 62sen. If I were to give it a lower PE of 8x, its target price should be RM4.96.

At RM2.54 yesterday, Latitude still has a potential 100% upside even the target price is calculated in a conservative manner! It is currently traded at a low projected PE of only 4.1x.

So I'll revise my target price for Latitude upwards from RM4.12 to RM4.96. If fair PE is 10x, its target price could be easily RM6.20. However, I will not aim so high pending next quarter's result.

Latitude still does not reach my core portfolio yet even though I have further bought its shares this month. Last year when I first bought its shares, I was expecting a poorer FY14Q2 result compared to Q1. With its latest result like this, I'll be more confident to promote it into my core portfolio.

Tambun Is Simply Indah

Tambun Indah FY13Q4 Financial Result

TAMBUN (RM mil)	FY13Q4	FY13Q3	FY13Q2	FY13Q1	FY12Q4
Revenue	118.4	97.1	82.6	78.3	75.7
PBT	36.3	31.2	26.3	24.0	20.8
PBT%	30.7	32.1	31.8	30.7	27.5
PAT	22.1	17.2	14.0	11.7	11.3
Total Equity	310.1	273.9	243.1	235.3	223.2
Total Assets	496.9	510.2	475.0	455.5	443.9
Trade Receivables	86.6	83.8	79.8	82.0	70.6
Prop dev cost	125.1	129.6	131.5	132.9	129.2
Inventories	0.3	0.0	0.0	0.3	0.3
Cash	125.9	141.9	117.2	99.7	96.0
Total Liabilities	183.3	185.0	185.9	178.8	182.0
Trade Payables	81.1	74.5	69.7	63.9	93.0
ST Borrowings	24.8	26.4	26.7	16.6	6.7
LT Borrowings	73.3	73.8	80.3	92.1	77.1
Net Cash Flow	24.3	52.5	22.9	4.4	51.9
Operation	57.9	32.5	2.0	-16.7	84.1
Investment	-21.4	-4.5	-4.2	-1.7	-52.9
Financing	-12.2	24.5	25.0	22.7	20.7
EPS	6.14	5.22	4.46	3.77	3.62
NAS	0.79	0.82	0.76	0.76	0.72
D/E Ratio	Net cash	Net cash	Net cash	0.04	Net cash

Again, Tambun registers another strong and record breaking quarterly financial result.

This time, its latest quarter's revenue grows 22% QoQ while profit attributable to shareholders grows 28.5% QoQ. It is noteworthy that its net profit shows an uninterrupted growth trend for the past 8 quarters.

What's more, the acquisition of the remaining shares in its 2 subsidiaries Palmington & TID was only completed on 25th Nov 2013. This means the new acquisition just contributed one month to its latest FY13Q4 financial result.

For the full FY2013, net profit attributable to non-controlling interest is RM22.8mil out of a total net profit of RM87.8mil (26%). I believe around 90% of profit for non-controlling interest went to Palmington & TID.

Pearl City is still Tambun's main income generator. Even if property sales in FY14 hit a snag, I think Tambun can still generate better profit to its shareholders as profit to non-controlling interest will be largely diminished.

Tambun (RM mil)	FY13	FY12	FY11	FY10	FY09
Revenue	376.4	296.7	191.8	128.1	100.9
Revenue growth %	26.9	54.7	43.7	27.0
PBT	117.7	79.0	46.8	36.2	30.0
PBT%	31.3	26.6	24.4	28.3
PAT	65.0	40.8	23.4	25.2	23.9
PAT growth %	59.3	75.1	-7.1	5.4
EPS	19.77
NTA	0.79	0.72	0.70
ROE	21.0	18.3	15.0
DPO %	40.1	40.4	50.3	40.3

Overall in FY2013, top and bottom lines grow 26.9% and 59.3% respectively compared to previous year. Besides, its ROE reaches 21.0.

Tambun proposes a single tier final dividend of 4.6sen, bringing its total to 6.6sen for FY2013. This represents a dividend payout of 40.1% of net profit which is expected.

At share price of RM1.74, it is a dividend yield of 3.8%.

At the end of FY2013, Tambun's unbilled sales stand at RM455.4mil. It plans to launch RM600mil worth of property in 2014 including Pearl Avenue 2, Pearl Tropika and Raintree Park in its Pearl City.

Everyone knows that there will be a slowdown in property market in 2014. How will it affect Tambun?

With the opening of second Penang bridge, influx of renowned developers to Seberang Perai Selatan and the exciting development in Batu Kawan, personally I don't think Tambun Indah's Pearl City will suffer a lot.

It may be a blessing in disguise as during the time of poor property market sentiment, genuine home buyers and investors will turn to more affordable properties in main land Penang, which are mostly 50% cheaper than its island's counterpart.

Tambun will start to construct GEMS international school building in June and it will be completed by September 2015. It is said to be the largest in Penang.

At the same time, it will also start the construction of phase 1 shopping mall in Pearl City Business Park this year, while still working on the plan to build a medical center there. All these will surely enhance the selling point of its Pearl City projects.

At RM1.74, Tambun's share price has already exceeded my own target price of RM1.58 calculated using FY13 estimated net profit of RM60mil. Using the actual net profit of RM65mil and paid up shares of 394.7mil, its FY13 EPS will be 16.5sen. 

Nevertheless, as I expect the new acquisition of Palmington & TID as well as billings from Straits Garden project to contribute significantly in FY14, I will include FY13 non-controlling interest's profit into the calculation of revised target price.

So this will come to RM85mil estimated net profit for FY14. Projected EPS will be 21sen thus new target price is RM2.10 if PE ratio is 10x.

Tambun still remain in net cash position. For it to continue its impressive growth, hopefully it can acquire more strategic land in the near future.

Matrix: It's Unbelievable...

Matrix FY13Q4 Financial Result

MATRIX (RM mil)	FY13Q4	FY13Q3	FY13Q2	FY13Q1
Revenue	144.3	127.4	147.3	155.6
PBT	56.4	48.7	40.6	61.5
PBT%	39.1	38.2	27.6	39.5
PAT	40.7	36.2	30.0	46.0
Res & Com Prop %	74.1	66.7	76.0	76.0
Industrial Prop %	20.8	27.8	21.0	24.0
Industrial Land %	5.1	5.5	3.0	0.0
Total Equity	552.4	540.1	518.3	387.9
Total Assets	900.5	862.8	793.0	645.4
Trade Receivables	140.8	161.5	118.1	185.7
Prop dev cost	443.8	362.4	400.0	360.5
Inventories	1.6	1.4	2.6	3.0
Cash -OD	83.8	211.2	206.5	38.5
Total Liabilities	348.1	322.7	274.7	257.5
Trade Payables	245.7	229.5	198.3	204.8
ST Borrowings	35.5	36.7	8.8	17.0
LT Borrowings	15.3	15.5	16.1	16.9
Net Cash Flow	53.4	180.8	176.1	8.1
Operation	39.7	120.7	65.2	9.5
Investment	-69.2	-37.7	-17.0	-0.4
Financing	82.9	97.8	127.9	-1.1
EPS	13.50	12.10	13.10	63.70
NAS	1.83	1.80	1.73	1.63
D/E Ratio	Net Cash	Net Cash	Net cash	Net Cash

For FY13Q4, Matrix's revenue and net profit are 13.3% and 12.4% higher QoQ respectively. Its PBT margin is kept at 39%.

The whole FY13 net profit of RM152.9mil (47.7% growth YoY) is slightly better than RM145mil that I predicted.

While it is certainly a great result for Matrix, it is widely expected and is not an unbelievable one. The one that is "unbelievable" is its chairman.

Where is the "double growth" ???

Matrix's cumulative operational cash flow drops substantially from RM120.7mil at the end of Sep13 to RM39.7mil at the end of Dec13, due to massive increase in the value of its development properties (+RM81.6mil) and development properties in progress (+RM70mil). These 2 items have reduced Matrix's operational cash flow by RM151.6mil.

I think this may be due to the timing of progress billings and banks have not release money to Matrix? So it should have no problem to be realized into cash later & should not affect Matrix's cash flow too much in the future.

Also, cash spent in buying land has increased from RM35mil 3 months ago to RM66.3mil.

Because of the reasons above, cash (minus bank overdraft) falls from RM211.2mil to RM83.8mil.

Nevertheless, Matrix is still a net cash company with RM50.8mil borrowings.

Personally I'm not too worried about this situation.

MATRIX (RM mil)	FY13	FY12	FY11	FY10	FY09
Revenue	574.7	456.1	624.3	195.6	204.0
Revenue growth %	26.0	-26.9	219.2	-4.1
PBT	207.2	142.8	106.3	30.0	24.4
PBT%	45.1	31.3	17.0	15.3	12.0
PAT	152.9	103.5	80.0	22.0	19.1
PAT growth %	47.7	29.3	263.6	15.2
EPS	64.7	43.6	29.2	8.6	7.8
NTA	1.83
ROE	27.7

Overall, FY2013 is a good year for Matrix in which revenue grows 26% and net profit grow 47.7%. The PBT margin of 45.1% is quite unbelievable for a property company.

Its ROE of 27.7 is also great!

At the same time, Matrix announced a fourth interim single tier dividend of 5sen per share, bringing the total regular dividend to net 25.375sen plus a special dividend of 5sen. This represents a payout ratio of 60% of net profit in FY13, exceeding its policy of 40%.

Dividend yield is still at a high of 8% even at current share price of RM3.80.

After the result announcement, Matrix's share price took a set back despite a decent result, perhaps due to lack of surprise and generally weak market yesterday. It has missed a good chance to break its historical high and might need to wait for another chance.

Looking forward, Matrix plans to launch new projects worth RM660mil in FY14, after successfully sold a record RM788mil worth of properties in FY13 (RM686mil in FY12). Its unbilled sales stands at RM437mil at the end of Dec13.

With the full FY13 PAT of RM152.9 and total paid up shares of 301.7mil, Matrix's FY13 EPS is 51sen. So I'll revise my own target price to RM5.10 (from RM4.93).

In the end, no double growth in net profit, no special dividend and no bonus issue... but I'll still hold it.

How Much Is Karex Worth?

Since its debut on 6th Nov 2013, Karex's share price has appreciated 132% in 4 months time to RM4.30 from IPO price of RM1.85.

Its proposed bonus issue soon after listing day might have fueled the rally to some extent.

By the way, it seems like Karex is not going to stop here. Both RHB and CIMB have revised their target price higher to the region of RM5.10.

If Karex Bhd had existed since 2012 (before IPO), its revenue and PAT for the 6 months ended Dec 2013 would be RM147.6mil & RM21.4mil respectively, compared to RM118.7mil & RM14.6mil for corresponding period of previous year.

This represents a 25% rise in revenue and an impressive 47% rise in net profit YoY.

It is expected that both revenue and profit will continue to rise further in tandem with Karex's on-track expansion plan.

From its IPO prospectus in 2013, Karex already has a capacity of 3 billion pieces of condom per year. The management plans to double its capacity by 2015, in which it will increase the capacity by 1 billion a year.

According to latest analyst's report, Karex has already achieved 4 billion in early 2014 and is on track to hit 5 billion pieces by the end of year 2014.

Four new lines with 100 million pieces capacity each line have been successfully installed in FY14Q1 (Jul-Sep 2013) and have contributed fully to its FY14Q2 earning.

Another 6 new lines have just started operation for the past few months and they are expected to further improve Karex's financial result in the second half of FY2014.

So, a total of 10 new production lines with total 1 billion capacity are up and running since mid 2013.

For July-Dec13, Karex achieves RM21.4mil net profit mainly from a capacity of 3 to 4 billion utilized at around 80%. 

If this trend continues, I think Karex will have no problem to bag RM45mil PAT for its FY2014 ended Jun 2014.

With an outstanding shares at 270mil, estimated EPS is 16.7sen and fair value should be RM2.50 if PE of 15x is given due to its growing mode.

However, analysts give Karex a PE close to 20x and use forecast earning in between FY15-16 to come to their target prices. That's why their target price is above RM5.

If Karex achieves a capacity of 6 billion in end of CY2015 (50% increase from 4 billion) with profit margin and utilization rate stay the same, its PAT may be able to reach RM70mil (50% increase from RM45mil) in FY2016 ended June 2016.

Thus, projected EPS in FY16 is 25.9sen, and target price is RM3.90 if PE is 15x.

Can Karex's utilization rate remain at 80% after it has doubled its capacity? Well, the management guided that the delivery lead time is at 4 months now (target below 2 months) and the company still has many pending orders. It seems possible.

For me, Karex's share is worth RM2.50 now and might worth RM3.90 in June 2016, but now it is trading at RM4.25. 

Year 2016 seems too far away and anything can happen within those 3 years.

Anyway, all these are just rough estimate only.

I believe Karex's share price will trend upwards until the bonus issues are ex-ed, and then it will go up and up again as long as it can produce good quarterly financial results.

Tropicana Lifted By Massive Fair Value Gains

It is indeed very hard for me to interpret Tropicana's financial result, as there are always a lot of fair value gains.

The figures and information here are not guaranteed to be correct.

Tropicana FY13Q4 Financial Results

TROPICANA	FY13Q4	FY13Q3	FY13Q2	FY13Q1	FY12Q4
Revenue	444.7	363.4	362.1	305.3	234.1
Gross Profit	203.4	130.2	117.7	130.7	98.1
Other Income	181.4	9.0	14.6	1.9	33.5
Finance Cost	18.2	27.7	15.6	16.5	13.9
PBT	325.2	49.3	62.3	66.8	60.8
PBT-FV	117.9	49.3	50.2	67.7	55.0
PBT-FV%	26.5	13.6	17.2	21.9	26.0
PAT	256.5	23.7	38.3	43.8	60.2
Prop Dev Rev	363.4	269.2	312.4	270.1	210.6
Prop Dev PBT	120.2	31.3	45.6	64.2	32.9
Prop Inv Rev	36.6	36.8	33.9	35.1	21.7
Prop Inv PBT+FV	105.0	19.9	25.5	14.0	25.0
Prop Inv PBT-FV	12.2	19.8	13.4	14.9	14.1
Inv Rev	44.7	57.5	15.8	0.0	1.8
Inv PBT+FV	99.9	-1.8	-8.8	-11.4	2.9
Inv PBT-FV	-14.4
Total Equity	2570.3	2345.5	2336.7	2174.5	2061.1
Total Assets	5425.7	5045.4	4990.5	4667.1	4518.4
Trade Receivables	383.3	236.0	214.9	101.2	103.5
Prop dev cost	554.3	370.3	412.8	517.1	417.2
Inventories	67.1	68.8	73.4	30.4	20.3
Cash (useable)	446.7	333.6	372.0	282.9	213.7
Total Liabilities	2691.7	2520.3	2477.8	2362.0	2329.6
T&O Payables	474.9	379.2	366.4	310.6	330.9
ST Borrowings	350.8	315.2	298.2	240.2	223.9
LT Borrowings	1566.8	1613.6	1562.6	1610.9	1642.1
Net Cash Flow	258.9	145.4	139.2	59.0	86.4
Operation	171.4	-98.4	-120.6	-94.7	-16.6
Investment	-48.2	32.3	106.0	105.6	-894.9
Financing	135.7	211.5	153.8	48.1	997.9
EPS	23.18	2.20	4.31	5.50	8.31
NAS	2.32	2.12	2.45	2.54	2.60
D/E Ratio	0.57	0.68	0.64	0.72	0.80

FV = fair value gain

Other income = management fees, rental income, fair value gain on investment properties & marketable securities, gain on disposal of land & PPE.

From the table above, we can see that Tropicana achieves 22.4% QoQ increase and 90% YoY increase in revenue. Its profit attributable to shareholders jumps more than 10x compared to the preceding quarter. This is mainly due to gain from fair value adjustment on its investment properties (RM207.2mil).

Excluding the fair value gain, its PBT for FY13Q4 is still a commendable RM117.9mil, much better than RM55.0mil in FY12Q4 and RM49.3mil in FY13Q3.

It is clear that its core business, property development, contributes significantly in FY13Q4 with a PBT of RM120.2mil, almost 3x higher than FY13Q3's RM31.3mil.

Apart from this, its net debt/equity ratio drops to 0.57 without selling its main investment properties.

Both of these are the main positives that I get from current Tropicana's quarterly result.

Tropicana Historical Financial Results

Tropicana	FY13	FY12	FY11	FY10	FY09	FY08
Revenue	1475.5	630.4	375.2	292.3	311.8	244.1
Revenue growth %	134.1	68.0	28.4	-6.3	27.7
PBT	503.6	224.9	99.2	53.4	72.1	76.7
PBT-FV	286.1	121.5	85.6	42.3
PBT-FV%	19.4	19.3	22.8	14.5
PAT	361.9	171.0	77.0	43.3	50.5	34.4
EPS	34.31	32.48	16.42	9.50	18.80	13.30
NTA	2.32	2.65	2.27	2.14	1.85	2.45
ROE	14.1	8.3	8.1

Tropicana's revenue and PBT (minus fair value gain) improves tremendously every year since FY2010. This shows the aggressiveness of its management towards becoming a prominent player in Malaysia property development scene.

ROE of 14.1% is misleading here as the net profit is hugely affected by fair value gains.

For its FY2013, Tropicana achieves total sales of RM2.2billion. Its unbilled sales so far stands at RM2.2bil as well.

Tropicana plans to launch new projects worth RM3.2bil in FY2014 and targets to achieve RM2bil sales. Earlier this year it has launched Tropicana Macalister in Penang (RM314mil) and first phase Tropicana Heights in Kajang (RM252mil). The take-up rates are at 36% & 62% respectively.

It has just officially launched the first of the 2 towers of Bora Residences at Tropicana Danga Bay yesterday, in which 100 of total 396 units have been taken up during soft launch last year. Its price starts from RM1,100 psf and the second tower is planned to be launched in July this year.

It may as well launch its ex-Canal city development later this year sooner than expected.

       Tropicana Heights Preview: can see leading actress of "The Journey" there

       Crazy double storey house price in Kajang, 62% sold...

To determine the fair value of Tropicana my own way, I'll use PBT-FV less 25% tax as the net profit for FY13. This comes to about RM215mil thus EPS is 19.4sen, and target price RM1.94 (from RM1.63).

I hope that Tropicana's management can find buyers for its investment assets quickly, so that its gearing ratio can remain at 0.50 level and also get rid of those massive fair value gain stuff.