On 20 October 2015, LIIHEN had a bonus issue and split share, which had increased the number of shares to 180 million shares. In the recent announcements, Mr Chua Lee Seng, the executive director had been selling 845,900 shares in the month of December alone, averagely at 2.70. He had been selling 589,900 shares starting from July to October, averagely at 6.3 before split and bonus. Why Mr Chua Lee Seng had been selling all his shares throughout the year even though LIIHEN had been profiting tremendously? The reason i could think is previously before the split and the bonus, the number of shares available is only 60 million shares, and mostly are held by the directors. So in order for LIIHEN to be more active, Mr Chua had been selling his shares so that it is more available in the open market. When there are more shares in the market, it will benefit the retailers like you and me to participate in LIIHEN. Of course, this is just my assumption. If you have any ideas, you can comment on this statement. Another point to note here, Mr Koon Yew Yin had been emerging in the top 30 shareholders in the Annual Report 2014. As a value investor, i believe He saw something in LIIHEN in which we can follow his footsteps.

LIIHEN had been in uptrend until a gap up followed by a shooting star in the mid of December. Since then, LIIHEN dropped and now in sideways, hovering around 2.7 to 2.8. I had drawn a support at 2.60 and 2 resistances at 2.78 and 3.00 respectively. Notice i draw a grey eclipse in the chart? It is the area when Mr Chua are disposing his shares but the price did not fall below 2.60, if yes, it rebounded very fast. By performing a risk to reward ratio, the RRR is actually very ideal. Based on the closing on 6 January 2016, 2.73. We can cut loss if the price falls below the support, and it might go up to 3.00. So the RRR is around 1:3, 1 portion of risk vs 3 portion of rewards. The volumes are starting to pick up these few days, with the MACD turning into bullish. If LIIHEN stock price reached past 2.78 and 3.00, then sky is the limit. It will form an uptrend channel. And i strongly believe the stock price of 3.00 is reachable as their Q4 Result will be announced in February 2016.

Now, let's try to project LIIHEN's price. I will have 2 case studies. Again, the projection is just for the comfort level.

Case 1: Assuming the Worst Case Scenario

Let's assume that the net profit for Q4 is the same as Q1, which is RM10,744k, the projected EPS for Q4 will be 0.0597. The net profit for the whole year will be RM49,611k divided by the number of shares 180,000k shares, totaling up to the EPS of 0.2756.

Let's assume the PE = 10, therefore the Price = 0.2756 x 10 = 2.75

With the current range between 2.7 to 2.73, it is actually lagging behind its supposed value. And again, this is considering the Q4's net profit is the same as Q1, which is the lowest of the cumulative quarters. This is the safest case and most low risk case scenario. (By the way, i would like to thank my friend, Mr Huat for sharing his Huat Analysis & his assumptions of taking the net profit of Q4 = Q1, which is the lowest net profit of all. Terima kasih byk byk, my fren~)

Case 2: Assuming Annualized Net Profit

Let's assume i annualized the net profit for the whole year. The net profit for 3 Quarters is RM38,867, divided by 3 Quarters x 4 Quarters, the annualized net profit is RM51,823k. In other words, the net profit for Q4 is projected at least RM12,956k. And the EPS for 2015 will be 0.2879.

Let's assume the PE = 10, therefore the Price = 0.2879 x 10 = 2.88

Again, this projection proves that the current price of LIIHEN (below 2.75) is actually lagging behind. Do take note the annualized net profit is taken into consideration, and i do expect the net profit for Q4 is to be at least RM12,956k or more than that. If it is more than RM12,956k, then i will say that the current price is lagging more behind.

I will perform a similar projection analysis as i had done to POHUAT. LIIHEN is now lacking of Q4 result, but we already know the exchange rate for the whole year for 2015. As mentioned in the Annual Report 2014, the management are using the exchange rate of USD/RM is 3.24, and for the year 2015, the exchange rate is approximately 3.90.

In 2014, when USD/RM is 3.24, the realized foreign exchange gain is RM5,318k. For the year 2015, when the USD/RM is 3.90, as i had mentioned earlier, i projected around RM8.4 mil of foreign exchange gain. However when i check through the Q3 Report, LIIHEN had actually had realized the foreign exchange gain of  RM7,035k, which is higher than what we had calculated. Therefore definitely 2015's foreign exchange gain is higher than 2014's. 

With this, i will assume that the current price of LIIHEN is lagging behind its real value and its price will be going as high as 2.80, aligning with my projection analysis, and it might go higher than 3.00 with the currently weakening RM.

LIIHEN's finally time to shine? Do you agree with me?

Let's Ride the Wind and Gainvest

Gainvestor 10sai

7 January 2016

2.25pm

Sources:

[1]: http://www.liihenfurniture.com/index.php

[2]: Annual Report 2014