Mohaiyani Research: Latitude Tree grossly undervalued

Furniture maker Latitude Tree Holdings Bhd, which is the target of interest for bumiputera businessman Datuk Samsudin Abu Hassan, has caught the attention of at least one stockbroking research house.

Mohaiyani Research, in a report on the company, said Latitude Tree, with the potential of becoming a "mini giant in furniture-making," was grossly undervalued at its current market price.

"We strongly recommend a buy on Latitude as the stock is grossly undervalued. Currently, trading at a 44 per cent discount to market, we have given a 20 per cent to market and fairly valued the stock at RM4.30 on FY2002 earnings.

"Based on a price earnings ratio of 13 times on FY2003 earnings, the stock is fairly valued at RM5," the research house said in the report on April 10. Its initial price target for Latitude was RM3.90. On April 10, Latitude closed at RM2.80.

Latitude is involved in the manufacture of wooden furniture and components, using mainly rubber wood.

Mohaiyani Research said Latitude Tree's expansion plans, which include a RM23 million plant in Vietnam and a RM5 million plant in Kapar, would transform it into "a mini-giant in furniture-making with EPS projected to grow an average of 17 per cent for FY2003 and FY2004".

It has forecast Latitude Tree's net profit to jump to RM28.7 million in FY2004 from RM21 million in FY2002 and RM24.4 million in FY2003.

Mohaiyani Research said the Latitude Tree group had secured a strong order book of US$55 million (RM209 million) for the next 12-month period.

"For FY2002, the higher projected revenue growth of 19.6 per cent will come from reduced inventory level following strong orders in the second half," it said, adding that product prices will be raised by three to five per cent.

Mohaiyani Research said the group was with strong financials and low gearing. As at Dec 31, the group has cash and deposits totalling RM12.3 million and debts of RM16.7 million.

On the technical level, Mohaiyani said most short-term oscillators were indicating that the stock was currently trading at overbought levels, while the medium-term underlying momentum was still showing a healthy upside.

"As such, we expect short-term profit taking activity to erode some of the gains made in the past few days in the immediate term," it said. It upgraded support to RM2.50 from RM2.20 on the back of improving demand. Resistance is at RM3.90.

It said Malaysian furniture exports in 2001 dropped by 18 per cent to RM3.7 billion from RM4.5 billion in 2000, but is expected to pick up again on the back of economic recovery and reduced inventory in the United States.