13-12-2004: Mayban Securities: Latitude fair value at RM2.81

Mayban Securities Research has derived a fair value of RM2.81 for wood-based furniture maker Latitude Tree Holdings Bhd - representing a 46% upside from the current price of RM1.92.

The research house applied a price earnings multiple of 10.3 times to Latitude's estimated earnings per share for FY2005 of 27.3 sen to derive the fair value.

Mayban Research said Latitude was currently trading at an undemanding PER05 of seven times. "For the past six years, Latitude has been trading within the PE band of 18.1 times and 6.6 times with an average of 10.3 times," it said.

Latitude specialises in the production of wooden furniture and components particularly rubberwood furniture mainly for the export market. Overseas sales make up 99% of its turnover.

Rubberwood is the single major component in the production of its furniture, accounting for 60% of the group's manufacturing cost.

Mayban Research said United States was the largest overseas market accounting for about 70% of turnover. Other major markets include Japan, Canada, South Korea, Australia and the Middle East.

It said the management had gradually reduced its export to the US from 80% and was planning to diversify further by expanding more to Europe and the Middle East.

It said 70% of Latitude's furniture was original equipment manufacturer (OEM) and 30% was original design manufacturer (ODM).

Mayban Research said Latitude was the only furniture manufacturer that does not engage in the trading of its own products, thereby avoiding conflict of interest with its furniture trading customers.