Fiamma Holdings Bhd (Fiamma) reported higher 3QFY23 headline net profit of RM20.7m (+97.1% YoY, +12.3% QoQ) mainly due to fair value and sales gain in other investments amounting to RM12.5m. However, after stripping out these items, core net profit for the quarter was down 22.0% YoY to RM8.2m due to lower revenue and higher operating expenses. This brings 9MFY23 cumulative core net profit to RM21.1m. The results beat our expectations, accounting for 84.1% of our full-year estimates. We keep our estimates unchanged however as we anticipate softer domestic demand for white goods amid weaker consumer sentiment due to tighter monetary conditions. We maintain our Neutral call on Fiamma with an unchanged sum-of-parts (SOP)-based TP of RM1.00.

• 3QFY23 revenue fell to RM92.9m (-1.5% YoY, -25.8% QoQ), mainly due to lower contribution from its trading and services segment (-23.8% YoY, -2.9% QoQ) amid weaker consumer sentiments. This was partly offset by higher revenue from property development which increased more than 7-fold to RM22.9m, driven by better sales of completed units.

• 3QFY23 core net profit decreased by 22.0% YoY to RM8.2m, mainly due to lower revenue, higher operating expenses and weaker margin from property development division as a result of more discounts offered to clear its current inventory of unsold properties. Blended gross profit margin for the quarter was lower at 26.6% compared to 31.0% for same quarter last year.

• Outlook. We remain cautious over Fiamma’s near-term outlook as we foresee domestic demand to remain soft 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 - 25 Aug 2023