Lii Hen Industries Bhd
INSIDER ASIA has featured quite a few wood-based furniture manufacturers over the past months. By and large, the industry has fared very well, thanks to a confluence of factors including the weakening of the ringgit that favours exporters. Having caught the upcycle early, we believe there is more upside to the sector, with the recovery in the US still in nascent stage.

Lii Hen (Fundamental score: 2.5/3, Valuation score 2.4/3), for instance, is still priced at attractive valuations. The stock is trading at 1.2 times book value and a single-digit PER of only 8.2 times.

The company is backed by solid underlying fundamentals — it is sitting on net cash, pays consistent and fairly generous dividends and delivers double-digit return on equity. 

In its latest 2014 results, sales totaled RM397.9 million, up 25.9% y-y, driven by a 30% sales increase from the US — Lii Hen’s single largest market, which accounted for 80% of sales. Sales to its second largest market, Asia, grew 20.7% y-y while demand from the remaining markets remained steady.

Net profit was up an outsized 58.7% y-y to RM28.2 million last year, lifted in part by one-off insurance claims amounting to RM7.2 million, which more than offset asset write-offs.

The company also gained from the depreciation of the ringgit. Total foreign exchange gains more than doubled to RM5.3 million in 2014.

In January 2015, Lii Hen recognised a revaluation surplus totalling RM34.9 mil, boosting net assets per share by approximately RM0.58. Most of the revalued land and buildings are manufacturing plants located in Johor.

The company is sitting on net cash of RM36.1 million.

Lii Hen has consistently paid dividends, with payout ratio ranging from 30% to 50% of net profit.

Dividends totaled 14.5 sen per share in 2014, giving a higher than market average yield of 3.7% at the current price.

This article first appeared in The Edge Financial Daily, on March 24, 2015.