SI Research: LY Corporation – Earnings Jump 17.8 Percent In FY17

Shares Investment previously featured LY Corporation in early February 2018, in conjunction with the group’s listing. Click HERE for the detailed write-up about the insights we gain from our meet up with the management. In this article, we will follow up on the group’s latest FY17 earnings result.

Performance Above Expectation

LY Corporation posted its maiden results post-IPO for FY17 and it did not disappoint. In FY17, LY Corporation reported net profit of RM51.2 million on revenue of RM350.6 million. Compared to a year ago, the group’s net profit was RM43.4 million, on revenue of RM287.4 million. Inherently, the latest results represent growth of 22 percent on the topline and 17.8 percent on the bottom line.

The stellar performance, according to the group, was underpinned by stronger demand from customers mainly from the US and increase in average selling prices of certain furniture models. The improvement in topline helped to outweigh the increase in cost of sales owing to higher purchase costs of raw materials which weighed on its gross margin by 1.1 percentage points to 25 percent. As a result, gross profit rose 17.1 percent to RM87.7 million. Other income rose 21.9 percent to RM6.2 million due to more material boards sold to LP Global Resources to manufacture the group’s front drawers.

Selling and administrative expenses rose 15.3 percent to RM25.9 million mainly due to the rise in depreciation of property, plant and equipment, increase in freight and handling charges, staff costs and Directors’ bonus, in tandem with higher revenue. Other expenses increased from RM1.1 million in FY16 to RM4.3 million due unrealised net exchange losses relating to the appreciation of the Malaysian Ringgit against US Dollar (the group holds some US Dollars for daily operations).

LY Corporation’s net profit of RM51.2 million can be translated to earnings per share (EPS) of 10.46 Malaysian sen, based on share capital of 489,144,200 shares assuming that the restructuring exercise pursuant to the share split, and 62,424,000 new shares were issued and allotted pursuant to the IPO had been completed as at 1 January 2016.

Under similar conditions, EPS for the preceding period would amount to 8.88 Malaysian sen. Based on prevailing exchange rate of $1 to RM2.99, FY17 EPS would surmount to about $0.035 in Singapore Dollar terms. Based on the current share price of $0.30, this represents a trailing 12-month price-to-earnings multiple of about 8.6 times.

LY Corporation declared one-tier, tax-exempt special dividend of $0.0078 per share for FY17. At the current share price, LY Corporation offers a yield of 2.6 percent.

Guidance For FY18

The group noted that raw material prices have continued to increase, albeit at a slower rate since its IPO. Meanwhile, the Malaysian Ringgit has appreciated against the US Dollar, which could affect the desirability of Malaysian exports and hence the group’s export goods to the US.

To negate the impacts, LY Corporation has engaged with customers to reflect the latest exchange rates on new prices for new orders for the majority of the group’s products. The ability to adjust products’ prices will help keep the impacts of unfavourable exchange rate conditions limited.

LY Corporation intends to recommend and distribute dividends of not less than 40.0 percent of net profits to shareholders all through till FY20. The group’s balance sheet remains healthy, cash of RM31.1 million against total borrowings of RM9.3 million and hence translating to a net cash position of RM21.8 million.