The price of gold has soared to a record high, reaching over $2,000 per ounce for the first time in history. The precious metal has been on a bull run since the start of the year, as investors seek a safe haven amid the global pandemic, economic downturn, and geopolitical tensions. Gold is widely seen as a hedge against inflation, currency devaluation, and market volatility.

But how can you take advantage of this golden opportunity? One way is to invest in gold-related stocks, such as those of jewellery retailers, miners, or refiners. In this article, we will compare two of Malaysia’s leading jewellery retailers, Tomei Bhd and Poh Kong Bhd, and explain why Tomei is a better bet than Poh Kong.

How Tomei and Poh Kong benefit from the gold price surge

Tomei and Poh Kong are both listed on the main board of Bursa Malaysia, and they have similar business models. They sell a variety of gold and other jewellery products, such as rings, necklaces, bracelets, pendants, earrings, and bangles. They also offer services such as jewellery repair, customisation, and valuation.

Both companies benefit from the gold price surge in two ways. First, they enjoy higher profit margins on their existing inventory, as they can sell their products at a higher price than they bought them. Second, they attract more customers who want to buy gold as an investment or a store of value, especially in times of uncertainty.

Both Tomei and Poh Kong reported significant increases in revenue and net profit in the first quarter of 2020, compared to the same period last year. Tomei’s revenue rose by 36.8% to RM104.7 million, while its net profit surged by 307.4% to RM7.4 million. Poh Kong’s revenue increased by 18.4% to RM226.9 million, while its net profit jumped by 147.3% to RM10.5 million.

How historically gold price surge benefits Tomei and Poh Kong financially

This is not the first time that Tomei and Poh Kong have benefited from a gold price surge. Historically, both companies have performed well during periods of high gold prices, as shown by their financial results and share prices.

For example, in 2011, when gold reached its previous peak of around $1,900 per ounce, both Tomei and Poh Kong reported strong growth in revenue and net profit. Tomei’s revenue grew by 19.6% to RM352.5 million, while its net profit rose by 46.8% to RM22.8 million. Poh Kong’s revenue increased by 23.2% to RM880.5 million, while its net profit soared by 69.2%> to RM36.1 million.

Similarly, in 2016, when gold rebounded from a slump and climbed above $1,300 per ounce, both Tomei and Poh Kong saw improvements in their financial performance. Tomei’s revenue improved by 13.9% to RM315.9 million, while its net profit recovered by 282.4% to RM8.7 million. Poh Kong’s revenue rose by 9.4% to RM898 million, while its net profit increased by 16.5% to RM30.6 million.

In contrast, in 2013 and 2015, when gold prices fell sharply, both Tomei and Poh Kong suffered declines in revenue and net profit. Tomei’s revenue dropped by 15.8% to RM265.8 million, while its net profit plunged by 72.7% to RM5 million in 2013. Poh Kong’s revenue decreased by 14.6% to RM737.2 million, while its net profit slumped by 43.2% to RM19.8 million in 2013. Tomei’s revenue fell by 18.2% to RM258.4 million, while its net profit tumbled by 81.8% to RM1.6 million in 2015. Poh Kong’s revenue declined by 15.3% to RM760.9 million, while its net profit dipped by 19.3% to RM24.7 million in 2015.

Why Tomei is a better choice than Poh Kong

Although both Tomei and Poh Kong are capitalizing on the current gold price surge, we believe that Tomei is a better choice for investors looking to ride on the gold rally. Here’s why:

• Price to Earnings Ratio (P/E): Tomei Bhd’s P/E ratio of 5.2 is lower than Poh Kong Bhd’s 6.3, potentially indicating that the stock is undervalued or that investors are expecting lower growth in the future.
• Price to Sales Ratio (P/S): Tomei Bhd also has a lower P/S ratio of 0.29, compared to Poh Kong Bhd’s 0.33. A lower P/S ratio could suggest that the stock is undervalued or that the company is expected to become profitable in the future.
• Price to Cash Ratio (P/C): Tomei Bhd’s P/C ratio is 10, lower than Poh Kong Bhd’s 16. A lower P/C ratio can indicate that a company is undervalued and has enough cash on hand to cover its liabilities.

However, Poh Kong Bhd has a lower Price to Book Ratio (P/B) of 0.66 compared to Tomei Bhd’s 0.73. A lower P/B ratio could mean that the stock is undervalued, or it could indicate that something is fundamentally wrong with the company.

When it comes to profitability:

• Gross Margin % (T12M): Tomei Bhd has a higher gross margin of 21.72%, indicating better efficiency at converting raw materials into finished goods and better control over production costs.
• Free Cash Flow Margin % (T12M): Tomei Bhd leads with a free cash flow margin of 0.2%, suggesting better efficiency at converting sales into cash.
• Return on Equity % (T12M) and Return on Invested Capital % (T12M): Tomei Bhd outperforms with a higher return on equity (ROE) of 14.9% and return on invested capital (ROIC) of 12.2%, showing better efficiency at generating profits.

However, Poh Kong Bhd has a slightly higher Net Margin % (T12M) of 5.67%, indicating slightly better efficiency at converting sales into actual profit.

In conclusion, we believe that Tomei is a golden opportunity for investors who want to capitalize on the gold price surge. The company has a strong track record of benefiting from high gold prices, and it has a better financial performance, valuation, and dividend policy than its competitor, Poh Kong. Therefore, we recommend that investors buy Tomei and hold it for the long term, as gold is likely to remain in high demand and appreciate further in the future.

https://bit.ly/Tomei

Just a friendly reminder: This article is intended to provide you with some interesting insights and is for informational and educational purposes only. It’s always a good idea to consider your own financial situation, risk tolerance, and investment objectives before making investment decisions. Remember, investing in the stock market involves risk, but it’s also an exciting journey. Feel free to do your own research or chat with a professional financial advisor. Happy investing!