FJ Benjamin Holdings

UOBKayhian on 7 Feb 2013

Business Outlook

·   Slowdown in North Asia to persist, but may bottom out soon. The slowdown in North Asiacontinues to hit the sales and net profit of FJB in 2QFY13. In our view, we believe this trend may bottom out by 4QFY13 in light of the encouraging economic data out from China. According to a research from Nielson, China consumer confidence rebounded to 108 in 4Q12 after bottoming out at 105 in 2Q12.

·   Continued strong growth in Indonesia. Sales inIndonesia will continue to be one of the key drivers of growth for FJ Benjamin (FJB). Domestic sales inIndonesia increased 14% yoy. The group intends to open another 11 stores in Indonesia in FY13.

·   Improvement in inhouse brand, RAOUL. The group has resolved the issue of “fitting” in the in-house brand that has previously depressed business. Going forward, we believe RAOUL may see an improvement in its business with the increased international awareness of the brand after Kate Middleton (Duchess of Cambridge) wore a patterned skirt from RAOUL during her visit in Singapore last year. RAOUL’s website page views increased from 355 to 2,596 views in the 24-hour period.

Financial results

·    Below expectations. FJB reported a net profit of S$1.14m, down 75% yoy. This is mainly attributed to weakness in its North Asia timepiece business which saw a 36% decline in sales. Excluding the one-time gain on sale of leasehold property, FJB’s net profit is S$0.22m.

·    Yoy revenue down 12%. Turnover for fashion and timepiece was down 1% and 30% yoy respectively. Gross margins remained stable at 43%. Other operating costs were lower, in line with the decline in sales, except for rental which rose 12% yoy.Advertising and promotion expenses were also lowered in line with management’s cautious outlook.

Earnings Revision

·    Tweaked earnings forecasts. We have reduced our FY13 and FY14 revenue forecasts by 14.5% and 1.5% respectively. As a result, we have also cut our FY13 and FY14 net profit forecasts by 56% and 31.2% respectively.

Valuation

·    Maintain HOLD with a lower target price of S$0.32 (previously S$0.35), implying a 9.4% upside. We have rolled over our forecast from FY13F PE to FY14F PE of 16.6x, in line with its Hong Kong and Indonesiapeers’ average of 16.6x.