SINGAPORE (Jan 30): NRA Capital likes LY Corporation, the original design manufacturer of wooden bedroom furniture, for what it sees as a positive mix of growth and dividend plans to come.

While potential appreciation of the Malaysian Ringgit presents a key risk to the group’s profitability, NRA believes this will be mitigated by the promise of a higher 40% payout of PATMI for FY18-20, up 25% from 25% for FY17.

In an unrated report on Tuesday, analyst Liu Jinshu highlights LY Corp’s strong execution ability, which saw sales volume grow 48% over 2010-2016 while the group remained focused on its core activities and markets.

Liu further sees room for growth in America given how its top customers, Rooms to Go and American Signature, rank among the top twenty furniture stores in the US.

“Four customers contributed 83% of [LY Corp’s] revenue in 1H FY17. Hence, there is room for the group to leverage on its cost advantage to acquire more customers in the US where new home sales grew by 8.4% to 608,000 units in 2017,” explains the analyst.

Another possible avenue of growth would be through the formation of joint ventures (JVs) or mergers and acquisitions (M&A) to expand into other products such as living room sets, so as to capture more revenue from existing customers, he adds.

Finally, Liu sees a window of opportunity for LY Corp to expand into China on the back of eroding cost competitiveness among PRC manufacturers, where imports of furniture from Malaysia have grown by 297.7% from 2011-2016.

“The group has sold 6,000 containers during the first 11 months of 2017 – a record from the 5,923 containers of 2015. Hence, we expect the group to report positive results for 2H FY17. However, FY18 profitability will be affected by higher operating and compliance costs, including S$2.1m of IPO expenses,” notes Liu.

“The RM has appreciated by 4.6% against the USD during January 2018. Based on FY16 revenue from US, a 5% appreciation in the ringgit will reduce revenue, and profitability, by RM11.1 million, assuming constant costs. This risk is in turn mitigated by the promise of higher dividends,” concludes the analyst.

LY Corp will start trading on the Catalist board of SGX from Wednesdaay.