Latitude Tree Holdings Bhd ('Latitud') is involved in the manufacturing of wooden furnitures & components. It has production facilities in Kapar & Batang Berjuntai, Selangor as well as Teluk Kalong & Kemaman, Terengganu. In addition, the group has factories in Binh Duong Province, Vietnam and Songkhla Province, Thailand.
Past 5-year Financial Performance
The group's turnover has been increasing steadily over the past 5 years. The main reason for the growth is the group's expansion in Vietnam & then in Thailand. Its net profit track record shows steady growth from FY2003-2006, but this has declined a bit in the current FY2007. Latitud has attributed the drop in the net profit to higher cost of rubber-wood as well as higher freight cost, coating cost & packaging cost (which was brought on by higher oil prices).
Recent Financial Results
Latitud's net profit for QE30/6/2007 decreased by 78.1% y-o-y to RM1.5 million. This was despite a higher turnover, which has increased by 9.4% y-o-y to RM102.6 million. Nevertheless, you will note that Latitud has recovered from a loss of RM0.98 million incurred in the immediately preceding quarter of QE31/3/2007 due to a improved turnover of RM102.6 million, an increase of 9.4% from RM93.8 million recorded in QE31/3/2007.
Current Financial Position
As at 30/6/2007, Latitud's financial position is deemed satisfactory, albeit an increase in gearing ratio was noted. Its liquidity position is healthy as reflected by its current & quick ratio of 1.10 & 0.54 respectively. Gearing ratio has increased to 1.0 times from 0.76 times as at 30/6/2006. The increase in borrowings of RM44 million was used to financed Fixed Assets investment of RM24 million as well as for working capital requirement (due to higher turnover).
In term of working capital management, we will note that the inventory's turnover period has improved from 88 days as at 30/6/2006 to 79 days as at 30/6/2007 while debtors' turnover has declined from 17 days to 16 days during the same periods.
Valuation
Based on FY2007 EPS of 16 sen & last Friday's closing price of RM1.29, Latitud is now trading at a PE of 8 times. At this multiples, I would consider Latitud to be relatively inexpensive.
Technical Outlook
A long-term view of Latitud's price chart shows that the share price has dropped back to its strong multi-year horizontal support of RM1.20 in October (see Chart 1). A break below RM1.20 could send the share price testing its all-time low of RM1.00, which was recorded during the Asian Financial Crisis 1998 period. While this is not impossible, I think that a drawdown risk of RM0.20 (from the horizontal support of RM1.20) is manageable.
Nevertheless, we can see from Chart 2 below that Latitud's share price has in fact begun to recover in the past 2 weeks. The share price has gone above the stock's 10-, 20-, 30- & 50- SMA level. A good entry would be at RM1.20-25 in the event of any pullback in the share price.
Chart 1: Latitud's monthly chart as at November 7 (courtesy of Quickcharts)
Chart 2: Latitud's daily chart as at November 9 (courtesy of Tradesignum.com)
Conclusion
Based on improving financial performance & possible technical recovery, Latitud is a good BUY for the medium-term.
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