• LY Corporation Limited (LYC) is a Malaysian-based manufacturer and exporter of wooden bedroom furniture. LY Corporation’s main export market is the US.
• Management believes furniture exports to the US in the near future will remain strong, given the surge in US new home sales in May.
• Management thinks the US-China trade tension could be positive for LY Corporation.

Wooden Bedroom Furniture Specialist

LY Corporation is a Malaysia-based manufacturer and exporter of wooden bedroom furniture with 40 years’ experience. The group is an established original design manufacturer, as well as an original equipment manufacturer, engaged in the design and manufacturing of custom wooden bedroom furniture.

Proxy for Malaysian Exports

• LY Corporation operates 15 factories and warehouses, occupying a combined built-up area of approximately 1.4m sq ft.
• LY Corporation’s products are sold to:
  1. overseas dealers such as furniture wholesalers and retailers that resell the products to end-users through their respective retail networks, and
  2. domestic Malaysian customers, primarily third-party agents that typically export and resell LY Corporation’s products outside Malaysia (to the US, for example).

1H18 Net Profit Fell 83% Y-o-y

LY Corporation’s 1H18 revenue fell 9.6% y-o-y, while net profit declined 83% y-o-y. Management explained that the revenue decline was due to reduced demand from customers, given the US-China trade tensions and a decline in selling prices. Its 1H18 net profit was also negatively affected by an RM6.8m charge for IPO expenses.

Without the IPO expenses, the net profit decline for 1H18 would have been 50.5% y-o-y.

Outlook: Management’s Comments

Management believes furniture exports to the US will remain strong in the near future, given the surge in US new home sales in May. At the same time, management also believes that the tariffs on China furniture exports would prompt US customers to seek alternative suppliers, making LY Corporation a potential beneficiary.

Also, management targets to increase its brand awareness in China via online sales that will be fulfilled by its distributor there.

Historical Valuations

Based on its FY17 financials, LY Corporation is trading at a historical P/E of 6.1x, P/BV of 1.8x with ROE of 29.1%.

The company is in a net cash position as at end-Jun 2018 and has committed to a minimum dividend payout policy of 40% of net profit for FY18-20F.

Source: CGS-CIMB Research - 19 Sep 2018