Lii Hen may receive export boost, says HLIB

KUALA LUMPUR: Hong Leong Investment Research has initiated coverage on Lii Hen Industries Bhd with a Buy call and target price of RM5.04 based on 11x FY18 core earnings per share of 45.9 sen.

Declining exports from China, the world's largest furniture exporter, are expected to benefit other major furniture exporters such as Malaysia, it said in a research note on Tuesday.

Lii Hen Industries, a manufacture of wood-based furniture, expanded its product range last year by expanding into the manufacture and design of upholstery sofa sets. The company may also benefit from the hurricane damages in the US as it ships 77% of its total exports to the US.

Hong Leong Investment Research notes that Malaysia's wooden furniture exports surged by 25% a few months after Hurricane Katrina in 2005.

In terms of its financials, the research house notes that the group's core net profit grew at a  five-year CAGR of 22.6%. 

"Lii Hen has a strong track record in terms of profitability, ROE and dividend payout as compared to its closest peers, due to its concentration in operational efficiencies and innovating into higher margin products via differentiations.

"Lii Hen is currently sitting on a large pile of cash (net cash per share of 53.8 sen). Given its bright earnings prospects, we expect Lii Hen to continue paying generous dividend of 26 sen/share (dividend yield of c.7.9%).

"We like Lii Hen due to its strong balance sheet (net cash per share 53.8 sen as at 30 June 2017), high dividend payout (dividend yield of 7.9%) and its ongoing effort to adopt effective cost management."

The research firm also expects stable growth in the global furniture market due to growing real estate industry and increasing number of global retail stores.