Trading Idea: LIIHEN (7089)

Hi Readers,

First of all, Happy Labor's Day and Selamat Menyambut Hari Buruh to all my friends, family members and all readers. May you have a great day and time off with your family and friends. Last month trading ideas did well though CCK started on the negative end only to end in the positive region as of last Friday. It was a good month for all our readers and the rebound in KLSE market lead to improving market breadth. 

Here we are again looking for new trading idea and I would like to bring your attention to LIIHEN (7089). Lii Hen Industries Bhd is engaged in the manufacturing and sale of furniture. Its products include bedroom sets, occasional products, utility products, sofa sets, buffet and hutch products, dining furniture and others. In addition, the company is also involved in Plantation and other segments. Plantation segment cultivates rubberwood trees, and Others segments include the firm's investment holding activities. Geographically business presence of the group can be seen across the Malaysia, USA and in other countries of which USA regions account for the majority of revenue.

LIIHEN has just published its annual report and it continued to demonstrate double digit percentage sales growth which is impressive and has been growing for the last 10 years. 

Image 1: Liihen 10 Years Revenue Growth, Net Profit (NP) Margin and ROE

There were blips in 2017 on its net profit margin and ROE due to the higher raw material cost, labour cost (minimum wages) and also forex impact. As can be seen from the chart, the profitability started improving again in 2018 while the revenue continued growing.

Technically, looking at the daily chart, one may easily think that its a downtrend. However, my recommendation would be to look at weekly chart. From the weekly chart shown in Image 2, it is obvious that Liihen price action is a consolidation and going through a healthy retracement. In fact, Monday's price action stops at the 200 days MA at $2.57 and on Tuesday, the price rebounded to close above the 200 days MA pointing to strong support.

Image 2: Liihen Price Actions against key SMAs. Support at 200 days MA

In summary, I personally believed Liihen offers an attractive opportunity for us to trade for the coming months due to the reason below:

1. Growing sales and profitability despite the slowdown in 2018 as can be seen from Image 1
2. Healthy weekly consolidations and supported by 200 days MA as shown in Image 2
3. There is only 180M shares for Liihen and its small cap. As we know, small caps returns has been on the positive side so far. And at such a small market cap plus positive profitability, it can easily move up
4. I did a valuations on Liihen based on its 2018 annual report reported free cash flow. Based on 180M shares, per share value is estimated at $3.61. Current share price offering close to 30% margin of safety. Its definitely an attractive opportunity for such a strong fundamental counter
5. Overall market breadth is improving and we have the power of overall market supporting us

Possible trade setups:

Entry: $2.69 +/- 3%
Stop loss: $2.13 and below
Target profit: According to your rate of returns or the levels above
Remarks: Watch for breakout above $3.20; Liihen will be reporting its Q1'19 earnings by end of May and I will be watching that as well. If the revenue generated is at the range of 190M to 200M, Liihen is on track for a great year.




Once again, Happy Labor's Day, Good luck and All the best!!!




Disclosure: The information above is for sharing purposes without any understanding of investment targets and needs of readers. References to the price movements is informational based on my analysis and data obtained from sources believed to be reliable at the point of writing. Please do your own due diligence before initiating a position as this article is not a recommendation to buy/sell.