Towards Financial Freedom
FJ Benjamin - Challenges Lay Ahead After Weak 4QFY13
Forex losses on top of a 2.0% y-o-y drop in revenue led to FJB posting a 4QFY13 PATAMI of SGD0.4m. We expect the near term prospects to be challenging amid persistently soft consumer spending in certain markets. In spite of this, FJB is going ahead with plans to expand its brands portfolio and open new stores. In view of this, we maintain our NEUTRAL recommendation and TP of SGD0.27.
- Keeping gross margins above 40%. Despite the competitive operating environment where retailers marked down prices to clear inventory, FJB was able to achieve a gross profit margin (GPM) of 40.1% in 4QFY13 (3QFY13: 44.1%). Included in the 4QFY13 numbers were gains from the disposal of properties amounting to SGD1.9m. This, minus forex losses of SGD1.8m due to translation differences, resulted in a PATAMI of SGD0.4m. Due to the weaker performance, FJB announced a dividend of 0.5 cent per share (FY12: 1 cent/share).
- Outlook to remain challenging. Consumer spending in Singapore is expected to remain cautious amid rising rentals and staff costs, which could adversely affect profitability. Demand for luxury timepieces in China and tourist spending by Chinese visitors in Hong Kong are likely to stay weak. However, this would somewhat be offset by continued healthy demand in Indonesia. Meanwhile, FJB plans to continue to open new outlets in Indonesia to ride on the nation's healthy domestic demand. Some of these new stores would be its planned VNC outlets.
- New luxury brands to perk up revenue growth. Despite the challenges, FJB plans to focus on its luxury fashion segment, which has proven to be relatively resilient. The group has secured distribution rights for Tom Ford, Valextra and Superdry and plans to open new stores for these brands at upmarket shopping malls in Singapore and Malaysia. While these new brands may help expand its revenue, the higher rental costs and absence of exceptional gains will dampen the growth. As such, we expect flat PATAMI growth for FY14.
Source: RHB
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