FJ Benjamin

Kim Eng on 22 Aug 2012

Brand building, a long-term game FYJun12 missed estimates. Full-year results came below our expectations, with sales of SGD393.2m, and net profit of SGD13.5m, making up 85% of our estimates. The group offered a final dividend of 1ct, as opposed to 2cts as of FYJun11; this is attributed to aggressive expansion and necessary increases in working capital. We lower our estimates for FY13-15 by 14-17% to account for higher operating expenses. We downgrade the stock to a HOLD on the basis of lowerthan- expected margins and expensive valuations.

Higher expenses all around. Pre-tax profit came in within our expectations at SGD19.7m, but the group’s tax rate rose 5.9ppt due to higher sales coming from Malaysia, where the effective tax rate is 30%. Tax is expected to normalize to 30% going forward. Cost-to-revenue ratio rose 1ppt to 40%, on the back of higher costs coming from development of RAOUL.

Sales growth still healthy. Regionally, fashion sales rose 10% YoY to SGD251.8m, boosted by markets in Malaysia, Hong Kong, the US and Europe. Timepieces performed well at SGD140.6m, up 14% YoY. The group is planning to open net 15 stores in FYJun13, adding to its current 191 stores.

Clinched a 10-year exclusive rights contract with Padini. FJB has signed a 10-year exclusive rights deal to distribute Vincci (VNC) shoes and accessories through FJB’s associate PT Gilang Agung Persada in Indonesia. The group will open 25 stores within five years throughout Indonesia and the first store is expected to debut by year-end.

Downgrade to HOLD. We are changing our valuation methodology from DCF for P/E to better account for cyclical cycles. Downgrade to HOLD with a TP of SGD0.36, based on 14x FYJun13F PE. Catalysts include better visibility from RAOUL and margin improvement.