InsiderAsia’s Stock Pick: Latitude Tree Holdings

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Latitude Tree Holdings Bhd
LATITUDE Tree is one of the country’s largest, more profitable and attractively priced furniture player. Despite the industry’s volatility, the company has been consistently profitable since its listing in 2001, and as a result, built up a large cash pile.  

Latitude manufactures rubberwood furniture with three manufacturing plants in Malaysia, two in Vietnam and one in Thailand. The company exports over 99% of its products, with the US taking over 90% of its sales. With a strong US housing recovery, prospects for Latitude are looking even more positive while the strengthening of the US dollar vs the ringgit will boost revenues, which are mainly denominated in the greenback.

For FY June 2014, sales surged 31.9% to RM 651.0 million, while pre-tax profit doubled to RM71.9 million. Balance sheet is solid with net cash of RM42.6 million or 44 sen per share at end-June 2014. This is an impressive feat, considering the company was in net debt position of RM41.6 million just two years earlier. The stock is trading at a low 12-month trailing P/E ratio of 6.4 times, and a price-to-book ratio of 1.1 times.

Latitude’s sales are mostly on cash terms and as a result, the company has very low trade receivables, mostly at under 10% of sales. Inventories turnover was at a respectable 5.9 times in 2014.

Latitude appears to have built a cost advantage with its operations in Vietnam since 2002, and has also benefitted from appreciating real estate prices there. It is focusing on expanding its profitable Vietnam operations while scaling down its loss-making Malaysian production. The company has 100 acres of land in Vietnam, purchased at US$ 25 per sq m in 2001. Today, the land is selling at over US$ 100 per sq m.

This article first appeared in The Edge Financial Daily, on October 30, 2014.