Latitude: Final quarterly 2017 results ended 30th September 2016

Latitude Tree was featured as a furniture stock to invest in this blog about a month ago when it was trading
at RM4.96.

Latitude Tree’s share price has not moved much since then and close at RM5.00 today on 5th December
2016, with satisfactory results for the quarter just ended on 30th September 2016.

Figure 1 below shows the share price movement of Latitude for the last one year.

Figure 1: Share price movement of Latitude Tree

Latitude has just reported its first quarter 2017 financial results ended 30th September 2016 on 29th
November 2016. Its EPS for the quarter is 21.7 sen. Although EPS is lower by 25% compared to the
corresponding period last year, which was the peak EPS for Latitude, EPS has improved by 115% compared
to the immediate preceding period. EPS for the trailing twelve months is 79 sen. It is not bad at all.

Revenue for the period increases by 17%, compared to the preceding quarter, to RM205.4m. Gross profit
increased by 6.8% to RM32.8m in line with the increase in revenue. However, this is offset somewhat by
the increase in raw materials and higher labour costs and weakening of USD in the quarter compared to
the preceding quarter. Profit before tax improved by 25.5% to RM21.8m as a result of increase in other
income, lower finance cost, compared to the immediate preceding period. Profit after tax is much higher
by 115%, mainly due to the lower tax.
Compared to the corresponding quarter last year, revenue dropped marginally by 5.8% from RM218m,
while PBT decreased by 23% from RM31.3m. Net profit after tax for this quarter, however, dropped by
25.4% from RM28.3m of the corresponding quarter last year.

Trailing twelve month’s revenue is RM758m with net profit of RM77.2m, or 79 sen per share.

Basing on the latest annual result, return on equity and return on invested capital remains high at 14.9%
and 21.0% respectively, double that of its cost of capitals.

The interesting investing thesis for Latitude is that despite its continuous excellent performance although
subdued a little in the last few quarters, its share price has dropped substantially to an attractive level of
RM5.00 at today’s close on 5th December 2016.

The price at RM5.00 is only 6.9 times its net earnings, way below 10. At the firm level, its enterprise value
is just 4 times its earnings before interest and tax, much lower than Buffett’s requirement of 7 times for
an ordinary company. The earnings yield is a high of 25%. Price-to-book value of one is cheap.

Although there may be increased competition in this industry as many Chinese companies operating in
Vietnam now, and there are some problems with local labour supply, I see little risk in investing in a good
company at a cheap price, but potential in extra-ordinary gain.

“The secret to successful investing is to figure out the value of something and then-pay a lot less” Joel
Greenblatt

K C Chong