Fiamma Holdings Bhd (Fiamma) reported a higher 4QFY23 headline net profit of RM10.5m (+35.6% YoY) mainly due to gains in other investments. However, after stripping out non-recurring items, core net profit for the quarter was down 14.5% YoY to RM6.6m despite higher revenue, mainly due to lower blended margin and higher operating expenses. This brings full year FY23 core net profit to RM27.7m. The results are within our expectations, accounting for 99.4% of our full-year estimates. We make no changes to our estimates. We remain cautious over Fiamma’s near-term outlook considering Malaysia’s consumer sentiment has turned more pessimistic with higher interest rates eating into spending power. We maintain our Neutral call on Fiamma with an unchanged sum-of-parts (SOP)-based TP of RM1.00.

• 4QFY23 revenue climbed 13.9% YoY to RM92.9m mainly due to higher contribution from its property development segment, driven by better sales of its completed properties. This was partly offset by lower revenue from trading and service segment which fell 7.7% YoY to RM72.8m.

• 4QFY23 core net profit fell by 14.5% YoY to RM6.6m despite higher revenue. This was mainly due to higher operating expenses and weaker margin from the property development segment 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 27.3% compared to 30.5% for the same quarter last year.

• Outlook. The consumer sentiment index tracked by the Malaysian Institute of Economic Research (MIER) continued its downtrend and showed greater pessimism in 3Q 2023 as inflation and higher interest rates ate into spending power. Fiamma, being a consumer-based Group is highly dependent on consumer sentiment and resultant spending, hence we remain cautious over its near-term outlook. Nevertheless, we remain positive over the Group’s long-term prospects, underpinned by growing middle class and household income growth, which should lead to stronger consumer spending. The Group’s land bank for property development also provides further earnings and valuation upside, once unlocked.

Source: PublicInvest Research - 24 Nov 2023