SABAH-based Focus Lumber (Fundamental: 1.45/3, Valuation: 2.4/3) is involved in the manufacture and sale of plywood, veneer and laminated veneer lumber.
We first featured Focus as our stock pick on December 11, 2014 at RM1.08. It went on to close at a high of RM1.61 on April 13 before giving back part of the gains in line with the broad market weakness. We think there is further upside potential for the stock given its still-low valuations, high dividend yield and solid balance sheet.
With 97.8% of Focus’ revenue in 2014 derived from exports, and a significant 64.9% of sales going to the US, the company stands to benefit from both the strong US economic growth momentum and USD.
Focus has bucked the volatile trend of most Malaysian timber companies over the years, which were affected by sluggish housing markets in Japan, US and Europe, as well as low commodity prices.
Its key differentiating strength is its focus on obtaining US environmental and quality accreditation and certification for its products, in order to penetrate the US market better. It was accredited as a CARB Certified Manufacturer in 2008 and a certified Lacey Compliant Wood Products Manufacturer in 2013. As US economic growth gathers steam, this strategy is paying off.
Focus has been steadily growing for the past 4 years. For the latest 1Q2015, revenue fell 20.6% y-y to RM30 million, while net profit declined 18.8% to RM3.3 million. This was attributed to lower sales volume to the US as a result of a delay in the arrival of vessel departing to the US.
Dividend per share increased from 6 sen in 2011-2012 to 8 sen in 2013-2014, giving a generous yield of 6.3%. Its dividend payout ratio was 51.5% in 2014.
Currently, Focus is trading at 0.99 times book with an attractive trailing 12-month P/E of 8.65 times. The company has a strong balance sheet with net cash of RM73.8 million at end-March, equivalent to 72 sen per share or 55.9% of its current market capitalisation.
http://www.theedgemarkets.com/my ... -day-focus-lumber-0
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