Lii Hen Industries Bhd managed to move above its previous resistance at 95 sen will like trade higher with further resistance levels of RM1 and RM1.05. As it is, the counter has already touched its 52-week high of RM1.01 in November from a low of 81 sen.

Hong Leong Investment Bank Research had previously said it remained cautious on the the furniture maker’s FY23 outlook as long as rates in the US remain elevated. High interest rates is causing mortgage payments to escalate, thus leading to decreased housing affordability. 

As US housing becomes increasingly unaffordable, fewer homes will be sold which negatively impacts furniture demand.  This would affect Lii Hens’ earnings in subsequent quarters as the US is the group’s main export destination.  Nonetheless, should the USD maintain its strength relative to the RM, this could help partially offset the decline in sales volume.

Despite being a beneficiary of a stronger USD, demand uncertainty amidst an uncertain economic outlook is clouding the group’s earnings visibility.  For the third quarter ended Sept 30, 2023, its net profit fell 30% to RM14.7 million from RM21.2 million a year ago. This is despite posting a 12% higher revenue of RM167.9 million versus RM149.5 million.

Lii Hen said its subsidiaries recorded positive grow in revenue in the current quarter as compared to the preceding year corresponding quarter, except for dining set.  It said the lower net profit was main due to the competition in the furniture industry, lower average selling price of the products in the current quarter.

The company also incurred higher operating costs, especially on labour-related charges, such as wages, sub-contractors’ charges and recruitment fees.

Lii Hen furniture include bedroom sets, occasional products, utility products, sofa sets, buffet and hutch products and dining furniture.  Apart from that, the company is also involved in plantation whereby it cultivates rubberwood trees. 

Moving forward, it said declining orders from customers and rising labour costs continue to exert pressure on its operations.  However, Lii Hen believes it will remain profitable for the financial year ending 31 December 2023 as large chunk of controllable cost structure is in place.

Th company also has a wider market-base for its products and rationalisation on the use of resources, especially available workforce. Investors looking to make quick buck may want to dabble in Lii Hen but should always stay vigilant in case there are any wrongdoings.

Here are the setup based on Daily Chart:

1. Reaccumulation with shakeout

2. Successful retest above support level