Friday 13 April 2012

FJ Benjamin Holdings

UOBKayhian on 13 Apr 2012

Maintain BUY with a higher target price of S$0.45 (previously S$0.43).

· On expansion mode. FJ Benjamin (FJB) will be looking to add a highly scalable, mass-market fashion label to its brand portfolio this year, targeted at the Indonesian casual wear market. FJB has not acquired a mass-market brand in six years and we believe that this brand acquisition could provide a platform for the group’s next leg of growth. In our view, FJB could grow the brand to 15 stores within 2-years.

· Scaling up Asian business. FJB will continue growing the Asian franchise business organically by increasing its store network by 10-15% annually, focusing on high growth markets in Indonesia andMalaysia. In our view, the group will be able to grow franchising revenue by almost 30% to S$450m within three years. This is excluding contribution from the RAOUL label and new brand additions.

· RAOUL making great strides. The RAOUL label is gaining popularity inHollywood as celebrities such as Jennifer Lawrence, Viola Davis and Kourtney Kardashian were recently spotted wearing RAOUL dresses. In our view, the RAOUL label could grow a few folds to become a S$50m business within three years. Currently, RAOUL only contributes about 5% of the group’s revenue.

· Focus on managing supply chain and inventory. Despite macro-economic uncertainties, FJB expects retail spending growth in Asia to remain resilient, driven by a growing middle class and increasing household income. Nevertheless, the group will adopt conservative measures to improve its supply chain and better manage inventory going forward.

· Beneficiary of tourism growth. FJB is a beneficiary of tourism growth, having a strong portfolio of luxury brands catering to tourist demand which include Celine, Givenchy, Goyard and Girard-Perregaux. The Singapore Tourism Board expects the tourism industry in Singapore to remain robust in 2012 and forecasts tourism receipts to grow 4-8% yoy. Visitor arrivals growth will be driven by the opening of new attractions such as the International Cruise Terminal, Gardens by the Bay and Mandai River Safari.

Earnings Revision

· Increase earnings estimate marginally. We increased our FY13F revenue and net profit forecast by 0.3% and 1.6% respectively, accounting for higher-than-expected same-store-sales growth and margin expansion from better supply chain management.

Valuation

· Maintain BUY with higher target price of S$0.45 (previously S$0.43), implying 32.4% upside from current price. Our target is based on a PEG of 0.6x, in-line with FJB’s Hong Kong and Indonesian retailing peers. Using our projected two-year EPS CAGR (FY11-13F) of 22.0%, we apply a 13.2x PE multiple to our forecasted FY13F EPS of 3.4 S cents.



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