LHT Holdings

[dydx]

I first noticed "LHT" on the many discarded wooden pallets lying around our industrial estates. I asked myself: If each wooden pallet costs a few dollars, and if most shippers or handlers would simply discard them after use, the big pallet suppliers should be enjoying a regular flow of a decent business.

Then I found LHT's website most informative.....
http://www.lht.com.sg/index.html
and the company's FY09 AR and H1 (ended 30Jun10)-FY10 results announcement most interesting.....
http://info.sgx.com/listprosp.nsf/07aed3...3002fccf9/$FILE/LHT_%20AR09_Lowres1.pdf [FY09 AR]
http://info.sgx.com/webcoranncatth.nsf/V...E003F09B7/$file/LHT-Holdings-Half-Yr-30Jun10Results.pdf?openelement [H1-FY10 results announcement]

In LTH, there is an established and profitable pallet supply and rental business - probably already the largest in Singapore. The company owns 2 large leasehold (JTC) factory premises in Sungei Kadut, from which it has its own warehousing/logistics operations, and a wood recycling plant producing a good amount of @Technical Wood mainly for exports; plus having extra space to rent out to 3rd-parties (earning a total rental & service income of approx. $1.72m in FY09) and building a new workers’ dormitory which should bring in a new income stream from FY11 onwards.....
http://info.sgx.com/webcoranncatth.nsf/V...D002788C8/$file/LHT-Holdings-44SgKadutSt1-A31Dec09.pdf?openelement

Based on the 212.98m outstanding issued shares, and today's closing share price of $0.085 (vs. NAV/share of $0.1419 as at 30Jun10), LHT now has a market cap. of only $18.1m. When compared against the present scale of the business operation, the decent and steady recurrent FCF generation and asset base (including a decent nett cash reserve), it is quite obvious that we have in LHT another gross under-pricing situation by Mr Market.

I suppose that's the main reason why some investors (not me!) were prepared to buy up this counter today - way ahead of the release of the coming FY10 full-year results only due in Feb11. I hope this will turn out to be another case of a value investor's wildest dream coming through early!

[d.o.g.]

LHT's profitability is quite erratic. If you look at the 5-year summary on pg 13 of the 2009 AR and strip out the "other income" which is mostly rent, then the company only made money once in the past 5 years. Ditto for 1H10 - if you remove other income the company was only barely profitable. Dividend record is not consistent, being paid in only 5 of the last 11 years. In 2002-2006 and 2008, there was no dividend. If the 2009 dividend of 0.25cts is paid again, then the yield is about 3%, not interesting IMHO.

As usual, YMMV.

[dydx]

The 1H-FY10 results show very strong revenue increases from the most important pallets and packaging business (+36.2% y-o-y, to $15.84m), as well as from the related pallet rental income and treatment processing fee (+52.6% y-o-y, to $1.45m). These positive revenue numbers indicate both demand and selling price increases, and possibly a market share increase as well.

By extrapolating the 1H-FY10 revenue numbers, it is reasonable to expect LHT to post a full-year revenue of close to (or even higher than) the pre-crisis high of $34.0m achieved in FY07, together with a higher full-year NP (earned from operations; without gain/loss from property revaluation) of $3.0m or more (vs. $2.74m in FY07). While a higher Other Income lifted NP somewhat in 1H-FY10, there are quite clear signs indicating a qualitative improvement in the volume and profit margins of the core pallets and related businesses.

The new workers’ dormitory should bring in steady and incremental profits from FY11 onwards. This will help raise LHT's NP further, going forward.

I guess there are people buying LHT because of the improved business and NP, as well as for the positive short-term outlook, which appears quite certain.

[cif5000]

The new workers’ dormitory should bring in steady and incremental profits from FY11 onwards. This will help raise LHT's NP further, going forward.

Took this from the announcement link you appended.
"to add a workers’ dormitory so as to provide for accommodation for its foreign workers"

How do you interpret the underlined? Do you mean collecting rental from its foreign workers?

They enjoy a quasi-monopoly pallet rental business in Singapore. This is worth almost the market cap if they decide to sell. The rest of the businesses and capital assets can be viewed as "national service".

[dydx]

Take note that this company's revenue has been hovering around $30m since FY2005. So the strong revenue increase may not imply....my 2 cents worth

http://www.lht.com.sg/report.htm

Do note group revenue includes:
(1) trading sales of timber related products, which had an erratic past pattern, produced little profits, and has been visibly cut back; and
(2) export sales of Technical Wood products (produced by LTH's wood recycling plant), which had never been big nor profitable in any meaningful way, and in fact has suffered further decline in FY09 and 1H-FY10. [Note: LTH uses the Technical Wood to make parts and as raw materials for its main pallets/packaging business.]

If we exclude (1) and (2) from group revenue, we should see an increasing trend over time for the remaining core pallets/packaging and related pallet rental and others. This is in line with the ever-increasing domestic distribution of goods and logistics activities in Singapore, which support regional/international trade.

Took this from the announcement link you appended.
"to add a workers’ dormitory so as to provide for accommodation for its foreign workers"

How do you interpret the underlined? Do you mean collecting rental from its foreign workers?

They enjoy a quasi-monopoly pallet rental business in Singapore. This is worth almost the market cap if they decide to sell. The rest of the businesses and capital assets can be viewed as "national service".

I believe there is a typo error here. It simply doesn't make any sense to spend approx. $5.0m to build a dormitory for only the company's own foreign workers.

I agree there is an element of national service in LHT's business, especially the wood recycling plant. But we should look at it as a resource that provides a steady supply of wood parts for the main pallets business. Incidentally, similar to NEA, LTH charges a fee on waste wood delivered by others to their plant, and this is captured under Other Income.

[cif5000]

I believe there is a typo error here. It simply doesn't make any sense to spend approx. $5.0m to build a dormitory for only the company's own foreign workers.

It's not a typo error.

Of the $5m, the bulk is used for "addition and alteration works to the existing factory building". Dormitory is for company's own foreign worker.

building a new workers’ dormitory which should bring in a new income stream from FY11 onwards.....

Therefore, I don't see it as a new income stream. A reduction in expense? - maybe.

[SLC81]

It seems that the "non-core" business is performing if not better than "core", other income, contributes to large part of its profit of which in 2009, a $ 1.5 one time revaluation included. Results of the "core" has not been consistent.

In fact, LHT has surprisingly performed much better in the last 5 years, if i recalled correctly, they was losing quite a lot of money in the years before 2005 and share price had alway been in the range from 1-3 cents back then.

Wooden pallets may be hard business in the future.

Cost efficiency is one of them, the most noticeable is the freight cost, as Plastic pallet is much lighter.

There is unlisted company in Singapore dealing with Plastic pallets, which they claimed to have moved from wooden to plastic.

http://www.dicpallecon.jp/en/history/index.html

Another trend is to use built-in Pallet with IBC, Goodpack, another listed company in Singapore which has been growing very fast they manufacture IBC (Intermediate bulk container) with built-in Pallet and rent out.

[Blackjack]

Another trend is to use built-in Pallet with IBC, Goodpack, another listed company in Singapore which has been growing very fast they manufacture IBC (Intermediate bulk container) with built-in Pallet and rent out.

Good point, this was the first thing that came to my mind as well. I believe the long term trend favours reusable pallets instead of wooden ones. So it is something worth more consideration if wooden pallets are the mainstay to the business.

[cif5000]

I believe the long term trend favours reusable pallets instead of wooden ones.

Aren't wooden pallets reusable?

[Nick]

I believe the long term trend favours reusable pallets instead of wooden ones.

Aren't wooden pallets reusable?

From my experience, wooden pallets are easily damaged and may rot if exposed to rain for a long period of time. Plastic pallets are better but I guess far more expensive.

But perhaps LHT pallets are of better quality !