Research Center

Fancy Wood Industries Plc.
FANCY <Bt48.50>

Recommendation
New       : BUY
Previous :  BUY
Fair Value :  Bt66.00

Slightly disappointing 2002 results, but earnings growth prospects remain

FANCY announced earlier this week a 19.4% increase in 2002 earnings to Bt449mn. This was slightly below expectations since the company's sales to its major market, the US, were affected by the west coast port workers' strike in 4Q02. It is important to note, however, that the orders were delayed not cancelled.

We are maintaining our 2003 earnings forecast of Bt621mn, up 38%. The company is currently operating at full capacity, but new capacity coming on line in 1Q03 will provide for revenue and earnings growth this year.

FANCY announced that it will pay a final dividend of Bt1.5 from 4Q02 operations after already paying dividends totaling Bt4.5 from the three previous quarters. Altogether, the Bt6 DPS paid from last year's earnings represent a dividend yield of 12.37% at the current share price.

FANCY's current share price looks cheap on a 2003 PER of 7.39x, EV/EBITDA of 5.91x and full year dividend yield of 12.37%. The stock is trading at a 26% discount to our fair value estimate of Bt66, which is based on a 2003 PER at 10x. We are maintaining our BUY recommendation.

FANCY earnings summary

Year ended December	2000	2001	2002	2003F	2004F
Sales (Btmn)	1,228	1,516	1,857	2,480	3,244
Net profits (Bt)	202	376	449	621	794
EPS (Bt)	2.70	5.01	5.99	6.61	8.45
Growth (%)	93.41%	85.78%	19.40%	10.35%	27.89%
Cash/shr(Bt)	3.19	5.70	6.85	7.72	9.81
PER (X)	17.97	9.67	8.10	7.34	5.74
BPS (Bt)	7.21	3.59	4.33	11.92	14.43
EV/EBITDA (x)	18.37	10.93	9.04	5.88	4.41
Dividend Yield (%)	6.19%	13.06%	12.37%	12.37%	12.37%

FANCY's sales in 2002 rose 22.5% to Bt1,857mn largely on the back of increased orders from both existing and new customers. Sales to some of FANCY's USA customers were delayed at the end of last year, however, due to the port workers' strike on the west coast.

According to the company, FANCY was able to fill these delayed orders in January. This year, we expect FANCY to achieve sales growth of 33% to Bt2,642mn due to its new bedroom furniture and production capacity which comes on line in 1Q03.

FANCY's gross margins in 2002 narrowed slightly to 29.6%. This was due to margins slipping to only 23.9% in 4Q02 from the order delays. We are forecasting margins improve back to 30% this year. Meanwhile, the company�s 2002 selling and administration expenses decreased Bt5mn or to a SG&A-to-sales ratio of only 5%. SG&A should increase this year due to the costs associated with the launch of the company's new line of bedroom furniture.

FANCY is in a strong financial position with a net debt-to-equity ratio of 0.18x and no long-term debt. The company's new expansion project should be completely financed from the proceeds of last month's 19mn share public offering and cash flow from operations. We are forecasting the company's gearing ratio to stand at Cash positive position at the end of this year.

FANCY income statement

4Q02

4Q01

% Chg

3Q02

% Chg

12M02

12M01

% Chg

Sales

420

505

(16.8%)

478

(12.1%)

1,857

1,516

22.5%

COGs

320

347

(8.0%)

339

(5.6%)

1,307

1,042

25.5%

Gross profits

101

158

(36.3%)

139

(27.8%)

550

474

16.1%

SG& A

28

29

(3.5%)

21

29.9%

99

104

(4.2%)

Operating profits

73

129

(43.5%)

118

(38.2%)

451

370

21.8%

Interest expenses

1

1

72.4%

1

66.2%

2

8

(71.5%)

Non-operating income

2

7

(70.9%)

2

(16.1%)

24

13

85.0%

Pre-tax income

75

136

(44.9%)

120

(37.7%)

475

383

24.0%

Net profits

76

130

(41.0%)

120

(36.1%)

449

376

19.4%

EPS

1.02

10.37

(90.2%)

3.19

(68.0%)

5.99

30.09

(80.1%)

Gross margins (%)

23.9

31.2

29.1

29.6

31.3

Operating margins (%)

17.4

25.6

24.7

24.3

24.4

Analyst: Kerkkiat Tipsumalai
Tel : 02-658-6300 Ext 1530
Email: Kerkkiat@kimeng.co.th

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