Latitude: Any Space For Growth?

Latitude Tree FY14Q4 Financial Result

LATITUD	FY14Q4	FY14Q3	FY14Q2	FY14Q1	FY13Q4
Revenue	142.8	146.8	184.4	177.1	124.4
PBT	10.3	14.8	26.0	20.7	9.4
PBT%	7.2	10.1	14.1	11.7	7.6
PATAMI	8.7	12.8	19.0	14.6	5.9
MAS Rev	23.4	32.3	31.6	28.9	23.2
MAS PBT	-0.7	3.0	2.1	1.2	-1.0
VIET Rev	114.4	108.1	147.7	142.2	96.1
VIET PBT	13.0	10.9	24.9	20.0	12.0
THAI Rev	5.0	6.4	5.1	6.0	5.2
THAI PBT	-0.4	-0.1	-0.3	0.02	-0.5
Total Equity	308.2	296.8	270.1	249.8	232.1
Total Assets	475.3	475.5	530.1	478.6	449.8
Trade Receivables	37.0	49.1	58.2	55.4	33.8
Inventories	93.5	90.7	95.4	81.8	89.7
Cash	123.1	109.0	147.4	116.1	96.1
Total Liabilities	167.9	179.3	205.5	179.3	173.4
Trade Payables	79.1	77.7	95.7	85.1	72.9
ST Borrowings	78.8	91.4	95.5	78.9	85.1
LT Borrowings	7.9	8.9	11.1	12.3	13.5
Net Cash Flow	26.5	11.5	48.2	14.6	41.9
Operation	81.2	55.5	42.2	20.3	52.9
Investment	-37.6	-34.0	-4.1	-1.2	-3.1
Financing	-18.5	-5.8	5.0	-8.6	-7.4
EPS	8.93	13.12	19.52	15.02	6.12
NAS	3.17	3.05	2.78	2.57	2.39
Net D/E Ratio	NC	NC	NC	NC	0.01

Latitude's FY14Q4 revenue & PATAMI drop 2.7% & 32% QoQ respectively. This is mainly due to loss of 8 production days in its Vietnam factories, together with delay in goods delivery.

If there are 26 working days in a month, then 8 days will represent 10% in a quarter with 3 months.

The drop in PBT margin to 7.2% is a bit disappointing. Increasing raw materials cost might be the reason but I'm not sure whether the hiccup in Vietnam plays a part or not.

Anyway, revenue of RM142.8mil is still an acceptable figure for me.

Despite the Vietnam trouble, revenue & PBT from Vietnam operation in the latest quarter are still higher QoQ and YoY.

Balance sheet grows stronger with more cash and less borrowings compared to previous quarter, even though RM28mil was spent on acquisition of remaining shares of LTIG earlier this year. This is because it has excellent operating cash flow at RM81.2mil.

Latitud (RM mil)	FY14	FY13	FY12	FY11	FY10	FY09	FY08
Revenue	651.0	493.7	517.9	500.6	506.9	397.4	404.2
Revenue growth %	31.9	-4.7	3.5	-1.2	27.6	-1.7
PBT	71.9	35.7	16.6	21.7	40.3	11.2	8.4
PBT%	101.4	115.1	-23.5	-46.2	259.8	33.3
PAT	55.0	24.4	9.8	12.5	27.7	12.5	10.8
PAT growth %	125.4	149	-21.6	-54.9	121.6	15.7
EPS	56.59	25.07	10.1	12.8	28.5	21.6#	16.7#
NAS	3.17	2.39	2.16	2.02	1.97	2.74#	2.47#
ROE	17.8	10.5

For the whole FY14, revenue improves by 31.9% to RM651mil while PATAMI jumps 125.4% to RM55mil. This includes a forex (USD vs MYR) gain of 5.2%. ROE reaches an impressive 17.8%.

EPS stands at 56.6sen which means Latitude is currently traded at a PE ratio of 6.0x at share price of RM3.40.

If given a fair PE of 8x, my target price for latitude will be RM4.53.

Latitude will only pay dividend once a year in December. It paid 6.3sen for FY13 which represents 25% payout from its net profit.

If it were to keep this dividend payout ratio, this means that it might pay 14sen for FY14. This is a 4.1% yield at current share price of RM3.40.

What if it decides to pay 40%, since its cash are piling up? This may mean 6.8% yield with 23sen dividend.

Besides, it is also capable to "reward" shareholders with 1:2 bonus issues.

Does Latitude still has space to grow its top & bottom lines?

LTIG became Latitude's wholly owned subsidiary in Q3 of FY14, so it contributes only half of FY14's result. FY15 will see full contribution from Vietnam's operation.

FY14 also sees Latitude increases its Vietnam production capacity by USD1.0mil per month or roughly RM37mil a year. However, I'm not sure what is the utilization rate. If the utilization rate is already high, then the growth might be limited and it needs more capex for expansion.

The most important thing is the demand for its products. As almost all its export are to the US, it will be closely linked to US economy and consumer spending.

It is learnt that Vietnam government will compensate those factories affected by riot. This might also contribute a little to Latitude's bottom line if it is true.

Anyway, Latitude is still trading around PE of 6 and price/book ratio of 1.1x. 

Latitude's historical financial results are up and down, which might be the reason market refuses to give it a higher PE. Will this trend continue in the near future?