Fiamma Holdings Bhd (Fiamma) reported a 43.8% increase in headline net profit to RM16.6m for 1QFY23 mainly due to fair value gain in quoted investment securities. However, after stripping out non-operating items, core net profit for the quarter was down 41.9% on lower sales in trading and services segment. Results are below both our and consensus expectations, accounting for only 17.4% and 17.7% of full-year estimates respectively. We cut our earnings forecast for FY23/24 by 20% as we are anticipating domestic demand to remain soft amid consumer sentiment weakened by tighter monetary conditions. Nevertheless, we believe the Group’s continuous focus on brand-building and promotional activities should be able to help cushion the impact of weaker consumer sentiment. We maintain our Neutral call on Fiamma though with a lower sum-of-parts derived target price of RM1.13 (previously RM1.30) following the earnings cut.
- 1QFY23 revenue decreased by 17.2% YoY to RM87.8m, attributed to sharp decline of sales in trading and services segment which contributed about 80% of the Group’s revenue this current quarter. However, this was partly offset by higher revenue from Property development segment attributed to its on-going residential development in Kota Tinggi, and better sales of its completed units.
- 1QFY23 core net profit decreased by 41.9% YoY to RM6.7m, mainly due to lower revenue and weaker margin from trading and services segment. This was partly offset by better performance in property development division which recorded a profit before tax (PBT) of RM0.4m compared with loss before tax (LBT) of RM0.6m in the preceding year’s corresponding period due to better margin and lower operating expenses.
- Outlook. We are cautious over Fiamma’s near-term outlook as we foresee a decline in domestic demand amid consumer sentiment weakened by tighter monetary conditions, and elevated inflationary pressures. However, the Group’s focus on brand-building, promotional activities and better product mix should be able to help cushion the impact somewhat. We remain positive over the Group’s long-term prospects however, underpinned by growing middle class and household income growth, which should lead to stronger consumer spending.
Source: PublicInvest Research - 24 Feb 2023