Latitud: A Good Q3

Latitude Tree FY15Q3 Financial Result

LATITUD	FY15Q3	FY15Q2	FY15Q1	FY14Q4	FY14Q3
Revenue	165.6	189.1	175.7	142.8	146.8
Gross Profit	27.5	34.4	26.2	20.3	23.8
Gross%	16.6	18.2	14.9	14.2	16.2
PBT	21.3	29.5	18.5	10.3	14.8
PBT%	12.9	15.6	10.5	7.2	10.1
PATAMI	19.5	27.4	16.6	8.7	12.8
MAS Rev	47.7	32.1	27.7	23.4	32.3
MAS PBT	5.4	5.4	2.3	-0.7	3.0
VIET Rev	125.8	149.4	141.0	114.4	108.1
VIET PBT	14.4	22.6	14.8	13.0	10.9
THAI Rev	9.0	5.6	5.8	5.0	6.4
THAI PBT	1.1	0.7	1.0	-0.4	-0.1
Total Equity	390.1	366.6	327.2	308.2	296.8
Total Assets	575.6	548.6	502.8	475.3	475.5
Trade Receivables	63.3	63.4	59.9	37.0	49.1
Inventories	109.7	103.9	97.4	93.5	90.7
Cash	142.1	151.3	124.0	123.1	109.0
Total Liabilities	184.3	181.0	173.1	167.9	179.3
Trade Payables	75.0	89.9	91.7	79.1	77.7
ST Borrowings	90.4	82.6	74.8	78.8	91.4
LT Borrowings	17.1	6.1	6.4	7.9	8.9
Net Cash Flow	-1.0	15.9	-1.6	26.5	11.5
Operation	22.8	22.2	6.1	81.2	55.5
Investment	-34.8	-7.5	-2.7	-37.6	-34.0
Financing	3.6	-2.2	-6.1	-18.5	-5.8
Dividend paid	8.3	0.0	0.0	6.1	6.1
EPS	20.07	28.19	17.13	8.93	13.12
NAS	4.01	3.77	3.37	3.17	3.05
Net D/E Ratio	NC	NC	NC	NC	NC

If you look at Latitude's past earning records, Q3 (Jan-Mac) is its poorest period in the whole financial year due to lower demand in US post New Year/Christmas festive period and shorter working days.

It even made loss in Q3 of FY11 & FY12.

This year its FY15Q3 result is even better than FY15Q1 despite slightly lower revenue. This is mainly due to forex gain of RM2.9mil in current quarter.

FY15Q3's revenue can be even better if not because of lower shipments to US due to its West Post strike.

Compared YoY, revenue, PBT & PATAMI increase 13%, 44% and 52% respectively, though Vietnam operation only contributed partially to its bottom line in FY14Q3.

Overall it's a good result for me.

There is a significant increase in Malaysia's revenue by almost 50% compared to last quarter but PBT stays flat. Is it a contribution from the laminating facility acquired last year?

Despite having a net cash of more than RM60mil, Latitude still has a net drawdown of borrowings of RM14.4mil in FY15Q3 alone.

What is this borrowings for?

It has spent RM28.7mil so far in FY15 in purchasing PPE, with RM22mil used in the acquisition of laminating facility.

As the management is not keen to pay higher dividend to its shareholders, I'm keen to know what kind of expansion plan they have with such a good cash on hands.

Hopefully some investment banks will start to cover Latitude Tree and write more detail about its current and future plans.

The US West Port strike seems to have settled towards the end of Feb15. This issue actually persist for 9 months before it ends.

So I would expect normal or may be more shipment to US for Latitude in its FY15Q4.

Latitude's cumulative 9-months PATAMI of RM63.5mil has surpassed FY14 full year figure of RM55mil. I expect it to post at least RM80mil PATAMI for FY15.

Thus, guesstimated EPS for FY15 will be 82.3sen.

I hope that its management will payout 30% of its net profit as dividend in FY15. This will be about 25sen or 4% yield at share price of RM6.

About bonus issue, Latitude has past record of giving bonus issue in year 2011. I predict that it might do it again in the near future but it will be OK for me if there is none.

For me, it's better if Latitude can expand its market presence out of US, increase its production capacity, or making strategic acquisition.

Huayang Falls Short Of Its Target

Huayang FY15Q4 Financial Result

Huayang	FY15Q4	FY15Q3	FY15Q2	FY15Q1	FY14Q4
Revenue	152.1	155.5	139.5	136.5	198.3
Gross Profit	53.2	59.3	45.2	43.2	65.9
Gross%	35.0	38.1	32.4	31.6	33.2
PBT	42.5	43.2	35.2	32.6	51.6
PBT%	27.9	27.8	25.2	23.9	26.0
PAT	29.7	30.9	26.0	23.9	37.8
Total Equity	465.9	449.4	436.9	410.9	387.0
Total Assets	923.2	877.3	828.0	811.0	824.2
Trade Receivables	88.9	73.3	68.1	62.6	75.6
Prop dev cost	167.7	175.5	159.5	145.1	142.2
Inventories	9.9	9.8	9.8	10.0	6.1
Other Current Assets	189.6	180.3	157.0	165.6	162.7
Cash	40.9	44.1	43.9	27.0	34.1
Bank Overdraft	7.4	14.4	10.9	15.0	4.9
Total Liabilities	457.4	427.9	391.1	400.0	437.3
Trade Payables	141.5	118.2	120.4	134.5	167.3
ST Borrowings	78.6	82.2	75.9	74.2	60.7
LT Borrowings	192.1	187.4	161.0	165.2	188.7
Net Cash Flow	3.4	-0.5	2.7	-18.2	-0.4
Operation	115.9	71.1	58.1	26.1	11.1
Investment	-86.6	-50.7	-23.9	-11.2	-110.8
Financing	-26.0	-20.8	-31.5	-33.2	99.3
Dividend paid	44.9	31.7	13.2	13.2	29.5
EPS	11.25	11.72	9.84	9.07	14.32
NAS	1.76	1.70	1.65	1.56	1.47
D/E Ratio	0.51	0.53	0.47	0.55	0.57
Unbilled sales	701.9	733.3	717.9	756.4	808.1

Compared to previous quarter, Huayang's revenue & PAT for its final quarter of FY15 are marginally lower.

This is within my own expectation as I don't expect the result to be anything close to FY14Q4.

Unbilled sales drop slightly to RM701.9mil from RM733.3mil a quarter ago, due to relatively poorer sales in FY15Q4 at RM118mil.

Net gearing remains at 0.5x level while cash flow stays positive in FY15 despite RM84mil spent on land acquisition.

Huayang	FY15	FY14	FY13	FY12	FY11
Revenue	583.6	509.9	408.7	306.4	188.9
Revenue growth %	14.5	24.8	33.4	62.2	82.5
PBT	153.4	112.4	95.3	72.5	34.3
PBT%	26.3	22.0	23.3	23.7	18.2
PAT	110.6	82.2	70.5	53.0	25.1
PAT growth %	34.5	16.6	33.0	111.2	116.4
EPS	41.88	31.12	27.43	21.22	10.08
NTA	1.76	1.47	1.69	1.86	2.05
ROAvgE	25.2	22.4	22.8	19.9	11.5
DPS	13.00	12.00	12.00	12.38	5.63
Net Gearing	0.51	0.55	0.26	0.27	0.30

For the whole FY15, growth momentum still continue impressively but it will be a challenge to maintain that in FY16.

Huayang plans to reduce its new property launch in FY16 to RM633mil amid softer property market. It will launch Mines South (GDV RM368mil) in early FY16 but Puchong West will be postponed to FY17.

It has set revised sales target of RM500mil for FY16, which is slightly lower than initial target of RM529mil.

Its overall FY15 new sales of RM460mil falls short of its own target of RM510mil.

At its peak, Huayang's annual sales recorded RM735mil in FY14.

Thus, continuous growth is not easy and so the attractiveness of Huayang will be its attractive dividend yield.

       Location of Mines South

Huayang will pay total 13sen dividend for its FY15, which represents only 30% payout ratio. However, dividend yield is 6.2% at share price of RM2.08.

I expect another 13sen dividend for FY16. If sales in the near future are poor, dividend in FY17 might drop.

With actual FY15 EPS of 41.9sen, my target price for Huayang will be RM3.35 base on PE of 8x.

This indicates a 60% upside from current share price of RM2.08 which is the main reason I put my money in Huayang last year, besides its good dividend and management.

While all analysts use RNAV to rate property stocks, I decided to stick to my own PE method. So it's a lesson learned that PE does not work in property sector especially during a slow market.

So, don't take my target price seriously.

Nevertheless, we know that Huayang is not a bad company. The management has a clear plan to replenish its landbank and GDV at this stage, and wait for the next property up-cycle.

At the moment, I think I will keep Huayang's shares, and regard it as "diversification" into dividend stocks :)

Can Heng Huat Achieve RM15mil PATAMI In FY15?

Heng Huat FY15Q1 Financial Result

HHG (RM mil)	FY15Q1	FY14Q4	FY14Q3	FY14Q2	FY14Q1
Revenue	26.5	23.2	23.1	24.1	21.3
Gross Profit	10.6	8.8	10.4	10.4	9.7
Gross%	40.0	37.9	45.0	43.2	45.5
PBT	3.5	3.5	2.3	3.7	3.8
PBT%	13.2	15.1	9.9	15.2	17.6
PATAMI	2.9	3.4	1.2	2.7	3.0
Biomass Rev	19.9	18.1	18.6	19.7	16.7
Mattress Rev	12.6	9.8	9.1	9.2	9.1
Biomass OP	3.6	3.6	4.3	4.2	3.5
Mattress OP	0.3	-0.1	-0.1	-0.2	0.3
Total Equity	70.0	68.3	64.8	43.1	40.4
Total Assets	114.3	109.8	110.5	95.3	90.5
Trade Receivables	26.7	22.3	19.7	21.4	19.2
Inventories	4.8	5.9	6.3	5.4	4.6
Cash	14.1	15.2	18.8	2.6	2.4
Total Liabilities	39.9	36.8	42.2	49	47.4
Trade Payables	13.1	11.2	9.2	11.4	9.4
ST Borrowings	11.4	9.6	12.1	15.5	15.3
LT Borrowings	14.3	15.3	19.0	20.5	21.4
Net Cash Flow	-1.2	13.0	16.6	0.4	0.2
Operation	4.9	13.5	8.7	6.5	2.6
Investment	-4.3	-7.7	-7.5	-5.1	-1.8
Financing	-1.7	7.3	15.5	-1.1	-0.7
Dividend paid	1.0	0.0	0.0	0.0	0.0
EPS	1.42	1.67	0.64	1.69	1.91
NAS	0.34	0.38	0.38	0.27	0.25
D/E Ratio	0.17	0.14	0.19	0.77	0.85

Due to increase average selling price of its biomass materials & related products, Heng Huat's FY15Q1 revenue improves 24.4% compared to corresponding quarter of FY14Q1 last year.

However, because of higher raw material price as well, gross profit increases by only 9.3%. Gross profit margin reduces from 45.5% to 40.0% in the same period.

Compared QoQ to preceding quarter of FY14Q4, revenue increases 14.2% but PBT is flat mainly due to higher selling and admin cost (annual increment and higher bonus).

Quarterly revenue from both biomass & mattress divisions reach record high but operating profits stay flat. Revenue from mattress division actually shows a good growth of 28% QoQ.

HH not only sells those super hard mattress made from biomass fiber, it also sells spring mattress. So it might benefit from accelerated completion of new properties in the country.

Other than that, balance sheet and cash flow remain fairly healthy.

       Fibre Star Pocket Spring Mattress

HH has paid its first ever interim dividend of 0.5sen (RM1.03mil) for its FY15 earlier this year. There is no dividend for FY14. There might be another round of dividend for FY15.

Its share price has rallied from 50sen to above 70sen level since the start of Apr15. I actually do not expect it to climb so fast.

The surge in share price was fueled by an article in The Edge on 27 Apr in which Heng Huat's executive director "hinted" that the company can achieve revenue and net profit of RM100mil (+10%) and RM15mil (+20%) respectively in its FY15.

So, latest Q1 PATAMI of RM2.9mil must have disappointed many investors and speculators thus its share price drops significantly.

Besides, Heng Huat also proposed bonus issue of 1:2 and transfer to main board as expected. These proposals have been submitted to Bursa Malaysia for approval.

Is it a trend now to give bonus issues soon after listing?

       "We got annual salary increment and higher bonus. How about you?"

Export sales make up 65-70% of HH's sales and China alone takes up 45%. Other countries are South Korea, Australia etc.

Director mentioned that strengthening of China RMB against RM will benefit HH. Its Forex gain in Q1 is just RM161,000.

Low crude oil price and slow down in China's growth could be concerns to HH. It's good that HH can explore new markets esp in Europe.

Using the company's forecast RM15mil PATAMI as a guide, target FY15 EPS for HH will be 72.9sen. So my target price will be 73sen base on PE ratio 10x.