FJ Benjamin

UOBKayhian on 22 Aug 2012

Results

·   Slightly below expectation. FJ Benjamin (FJB) reported 6% yoy growth in FY12 net profit to S$13.9m, which was 6.7% below our expectations. This was mainly due to lower-than-expected sales in 4QFY12 and higher-than-expected costs related to the development of RAOUL.

·   Revenue up 11%. FY12 revenue was up 11% yoy to S$393.2m, driven by buoyant retail spending in Singapore, Malaysia, Hong Kong and China. Revenue from the fashion segment grew 10% yoy to S$251.8m in FY12, while the timepiece business grew 14% yoy to S$140.6m.

·   Operating expenses up 14%. FY12 operating expenses were up 14% yoy due to higher headcount, store rental, a newly set up warehousing centre in Shenzhen and a showroom in Milan.

·   Declared 1 S cent dividend. FJB has declared a first and final dividend of 1 S cent/share, implying dividend yield of 2.9%. This is down from 2 S cents/share paid out in FY10 and FY11, as FJB will re-invest earnings to further expand its brand portfolio and store network in FY13. 

Stock Impact

·    Signs Vincci deal. FJB recently signed an exclusive 10-year deal to distribute women’s shoes and accessories under the Vincci brand in Indonesia. Under the agreement, FJB will, through its associate PT Gilang Agung Persada, open a total of 25 stores within five years. We forecast three store openings in the first year, which are expected to have an immediate uplift on associate contribution.

·    Eyeing more brands. We believe that FJB could add a lifestyle brand and another high-end fashion label to its portfolio within the next 12 months. In our view, brand additions will drive the next leg of FJB’s growth as the group has not acquired a mass market brand for six years prior to the recent Vincci deal.

·    Transitional year for RAOUL. FY12 was very much a transitional year for RAOUL as FJB invested heavily to build key management and expand distribution channels. We expect RAOUL losses to narrow significantly in FY13 as a double-digit top-line growth will outpace stabilising operating expenses.

Earnings Revision

·    Tweaked earnings forecast. We reduced our FY13 and FY14 net profit forecast by 12.0% and 17.5% respectively, accounting for higher-than-expected operating expenses and interest costs from higher gearing.

Valuation

·    Re-iterate BUY with lower target price of S$0.40 (previously S$0.42), implying 14.3% upside. Our target price is based on 14.8x FY13F PE, at a 5% premium to Hong Kong and Indonesia peers’ average of 14.1x. We raise our valuation peg from 13.4x to 14.8x as we believe FJB’s brand expansion strategy will create a platform to improve future growth potential in Southeast Asia.