Latitude Tree International Group Ltd

Latitude Tree International Group Ltd has over 9 years of experience in the wooden furniture industry. The Group is a leading manufacturer of quality lifestyle wooden home furniture, with a product range focused on Collection Sets. The largest exporter of wooden furniture in Vietnam (from 2006 to 2008), the Group’s products are manufactured in Vietnam at 2 production facilities with a total built-up area of 232,342 square metres.

The main product categories are bedroom Collection Sets, dining room Collection Sets, living room Collection Sets and others. Most of our customers are based in the USA and Canada and the bulk of our products are exported to the USA. Our Company is a subsidiary of Bursa Malaysia-listed Latitude Tree Holdings Berhad.

The Company is offering 36m shares at $0.22 each for a Catalist listing. (For those who are asking how to apply for the IPO, the answer is that you have to be a client of DMG or close associates of Prime Partners before you can apply for the placement shares. There is NO public tranche at all.) The offer will close on 17 Aug 2009 at 10am.

The Company generated sales of S$108.725m in FY 2008 and the net profit was S$9.305m. As you can see from the picture above, while sales has been increasing steadily over the last 3 years, net profit has remained stagnant and has even declined. This indicates a margin squeeze over the last 3 years. However, interestingly, the sales and net profit for the first half of 2009 improved dramatically where sales for the first 6 months is $67.6m and net profit is $5.1m. See the chart above. I really dont want to get overly excited about this increase at this juncture as it seemed to me "too good to be true". The figures are unaudited and after all, this is a PIPE deal as the parent company is already listed in Malaysia. Really makes me wonder why it would want to seek a Catalist listing here. Anyway, assuming the sales doubled in FY2009 to $135m and net profit also doubled to $10.2m, the EPS based on post-IPO shares will be 4.26 cents. Based on the IPO price of 22 cents, this translate to a forward PE of 5.16x and the market cap is around $52.72m. The Company also intends to distribute 30% of its profits as dividends for the next 3 years.

Off hand, i can think of 3 furniture stocks listed on SGX: HTL, Koda and Cacola but Koda and Cacola are not doing well in FY2009 while HTL has returned to profitability in Q1 2009. Cacola and Koda are currently trading at 0.92x and 4.16x historical PERs. HTL is currently trading at 60% discount to its book value even thought Q1 profit is $14.8m whereas Latitude will be issued at a premium to its NTA.

In any case, i believed the IPO is fairly priced at 22 cents and i am no fan of the furniture industry. Investors who are keen to invest in this company may want to do a more detailed analysis of HTL as a comparison as i personally believe HTL offers better value at current prices.

But as you can see from the IPO debut of Mary Chia, fundamentals dont really matter in the short run and positive market sentiments will likely mean a positive debut for Latitude and in the long run, we are all dead anyway :P (just kidding).