Posted by hpcp > 2016-01-05 10:17 | Report Abuse

Not right to annualise its first quarter earnings. Earnings of furniture makers are seasonal

Posted by ValueGrowthInvestor > 2016-01-05 10:41 | Report Abuse

Thanks for pointing out seasonality. In fact the first quarters have been the weakest quarter for SHH in which it made losses in 2008, 2009, 2011 and 2012 while making the weakest quarterly profits in years 2014 and 2015. Thus if you are arguing on seasonality, the following quarters should be even stronger compared to first quarter and my assumption is rather conservative.

Posted by pingdan > 2016-01-05 10:44 | Report Abuse

This company benefited from the depreciation in USD. As the cost of production is in ringgit, the appreciation of USD will increase the competitor advantages with country such as vietnam as the cost of production (labour cost, logistic cost, rental and etc) calculated in malaysia ringgit.

Think about this, if they sell furniture to foreign company, they can offer a much lower price as the cost is much lower in term of USD in global market. Hence the sales volume will increase if they lower down the price (in term of USD) as they able to offer much lower price to compare other furniture maker that setting up their factory outside Malaysia.

Other than that, the company incurred loss on derivatives of RM1.9mil of derivatives cost with the currency rate of RM4.40. If you look on the currency on RM4.29429, hence profit on derivatives will incurred.

If loss on derivatives did not incurred, the company will have extra 3.8sen profit for their account. Hence 6.96+3.8=10.76 sen for next quarter at least

Posted by hpcp > 2016-01-05 10:57 | Report Abuse

ValueGrowthInvestor, if you look at Poh Huat and Latitude Tree, 2H of calendar year is typically stronger half for them.

Posted by vinext > 2016-01-05 11:09 | Report Abuse

depends

Posted by ronnietan > 2016-01-05 11:24 | Report Abuse

You seem biased, because the seasonality is obviously not first quarter Sept 30 as you stated, but SHH itself stated that "turnover is generally lower in the beginning of the calendar year"
ie its third quarter March 31, which is seasonal low for most OEM exporters.
Therefore, as hpcp correctly pointed out, it's not right to annualise from Sept quarter, typically the strongest quarter for OEM exporters.

Posted by hpcp > 2016-01-05 11:30 | Report Abuse

You pointed out that the 1Q of SHH fiscal year was typically weakest. Did you manage to find out why? But for other furniture manufacturer exporting to US, the are strong in 2H due to higher sales before Christmas and New Year. Hope to hear from you your understanding why 1Q of SHH was typically weakest.

Posted by pingdan > 2016-01-05 11:37 | Report Abuse

Ronnietan: I disagree with some of your points

Yup, some furniture will have a weak season during 1st quarter but it only affect for the company which have a long holiday during chinese new year. A good example to see is Prlexus and Pohuat which most of their revenue generated from Vietnam.

I also disagree with you that 30 Sept is the strongest quarter for exporters.

In fact 31 Dec is the strongest quarter for furniture exporters as the company will export more furniture during christmas season.

Posted by ronnietan > 2016-01-05 11:47 | Report Abuse

hpcp, SHH explained under "seasonal factors" in its results statements that first quarter calendar year has lower turnover due to "lower overseas demand and longer festive holidays."
Calendar Q1 is typically weakest quarter for exporters because it's a long way off from the peak Christmas season.
Strongest quarters tend to be calendar year Q3 or Q4.
For Latitude eg, Q4 is its strongest, while for Poh Huat, its strongest is its Q ending Oct 31.

Posted by ValueGrowthInvestor > 2016-01-05 12:05 | Report Abuse

After checking some retail data for furniture sales, 2nd half of calendar years have typically witnessed peak sales. Thus, as the quarter ending Sept had already exhibited strong numbers, I expect the quarter ending December to show improved numbers.

There is a possibility that some normalization could occur for the quarters ending March and June. However, based on the past 2 years track record, the quarters ending March and June have been good quarters suggesting that SHH's customers could have restocking needs in these 2 quarters.

Posted by ronnietan > 2016-01-05 12:11 | Report Abuse

I take back and apologise for my remark of bias. That was unnecessarily personal. This is a forum after all.

Posted by ValueGrowthInvestor > 2016-01-05 12:25 | Report Abuse

In any case, to address your comment on being biased, I valued Latitud, Pohuat and Liihen's PE ratio all based on annualized latest quarter earnings (in your opinion, the strongest quarter) as well, thus making comparisons apple-to-apple.

Posted by pingdan > 2016-01-05 13:29 | Report Abuse

Valuegrowthinvestor: for your information, for 31/3/2014, the profit is so good due to disposal of one of the building. Hence u cannot say that 31 Mar quarter, the result must be good

Posted by hpcp > 2016-01-05 13:40 | Report Abuse

Hi ValueGrowthInvestor, if you used Pohuat latest quarter without taking out the one off loss from the fire incident, then it may not be a good comparison

Posted by ValueGrowthInvestor > 2016-01-05 14:33 | Report Abuse

pingdan: Disregarding gain on disposal of RM2m, the quarter's profit of RM1.762m is still the highest that year.

hpcp: For Pohuat, loss on write off of property and inventory net off gain from insurance is RM5.18m. However, do note also in the cash flow of "other non-cash item gain" of RM5.9m and note in the balance sheet a new item "investment property" amounting RM7m. There could be some reclassification of asset into "investment asset" with revaluation done and intention to dispose in the future.

Posted by pingdan > 2016-01-05 14:42 | Report Abuse

haha nvmla. I also holding quite alot shares in SHH. I dun care about others detail . As long as it will generate good profit, I will continue hold this.

Posted by tkk1127 > 2016-01-05 17:18 | Report Abuse

Conclusion is SHH is consider as good stock. Buybuybuy.

Posted by wren > 2016-01-05 18:06 | Report Abuse

good write up~buy buy buy!!! Target RM3, undervalued and undercoverage exporting stocks!

Posted by CCCL > 2016-01-05 21:45 | Report Abuse

Potential share split because 50 million shares. Look at Prlexus in 2012 their share base only 36 million, after share split and bonus issue to 100+ million, any investor who hold on from 2012 to middle of 2015 have their investment grow more than 10 time. Same like Pohuat at least 4 times yourinvestment. You just can expect today you buy the shares and the next day you make some coffee money. Hold tight !!!! you will be rewarded.

Posted by robrob > 2016-01-05 23:27 | Report Abuse

Hi ValueGrowthInvestor, the forward foreign currency contract has a fair value lost of RM1.9 mil. It increase quite a fair bit compare to previous quarters when USD/MYR are weaker than before between July - Sept 2015 period. Too bad it hits the bottom line. What's your view on this for the next quarter?

Posted by ValueGrowthInvestor > 2016-01-06 08:03 | Report Abuse

Hi Rob, yes there are changes in the fair value of derivative contracts that is reflected in P&L. However, these are non-cash items until which time the contracts are due and settlement is made. Thus, it is removed in my calculations.

To gauge the impact of this on P&L in the quarter ending Dec, all we need to do is look at the closing USD/MYR rate for that quarter in which the fair value of contract is determined and compare it with the previous quarter. On 30/9/15, the USD/MYR was 4.40 while on 31/12/15 it was 4.30, a difference of -2.3%.

Hence, it is safe to say that we might see some profits from the change in fair value of derivative contracts for the quarter ended Dec 15.

Posted by YiStock > 2016-01-06 08:10 | Report Abuse

Hi valuegrowthinvestor, can u explain more in details about the exchange contract i.e. how is the mechanism, the locking period? The time frame? This is a very important element as i also see them appeared in many companies. Thank u

Posted by ValueGrowthInvestor > 2016-01-06 08:27 | Report Abuse

(iii) Derivative financial instruments
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. Changes in fair value of financial instruments are recognised in the profit or loss.

Posted by YiStock > 2016-01-06 11:43 | Report Abuse

thank you.

Posted by robrob > 2016-01-06 20:24 | Report Abuse

Thank you

Posted by loveygramps > 2016-04-05 12:47 | Report Abuse

Poh huat is very similar in valuations and also sells to the US. Also very much higher revenue and profit base. Would you consider them then?