• Fiamma’s household products target lower and middle income household segments, who may feel the pinch from rising inflationary pressure
• The rotation in consumer spending from goods to services could impact demand
• Initiate coverage on Fiamma with a SELL rating and a 12-month target price of RM0.53 pegged to 8.7x PER based on FY23E EPS

Projected Revenue to Decline by 1.5%-4.3% for FY22E-24E

We project revenue to decline by 1.5-4.3% for FY22E-FY24E weighed down by lower sales from the group’s trading and services as well as property segment. With Malaysia transitioning to endemic phase coupled with rising cost of living, we believe that consumers will spend less on E&E products. For the property segment, we project lacklustre contribution due to unexciting new projects and tight lending conditions. We forecast core earnings to shrink by 0.6%-11.1% dragged by (1) lower sales from trading and services segment influenced by shift in consumer spending behaviour as well as lower discretionary income among the consumers due to inflationary pressure and (2) declining margins from increasing costs of operations and costs of sales from weakening of Ringgit.

Signature to Acquire 23.7% Stake in Fiamma for RM180m

On 18 May 2022, Signature International proposed to acquire 23.67% stake in Main Market listed company Fiamma for a total cash consideration of RM180m. They have entered into a SSA with Fiamma major shareholder. Separately, Divine Intervention Sdn Bhd which is a private entity controlled by Datuk Seri Chiau Beng Teik’s family; founder of Chin Hin Group Berhad has entered into an SSA to purchase 30m ordinary shares (5.9% equity interest) in Fiamma for RM1.50. Collectively they will own a 29.6% stake in Fiamma and the acquisition is expected to complete within four months from the date of the SSA. This is to tap into Fiamma’s extensive nationwide coverage on retail distribution as well as servicing network of home and kitchen electrical appliances which will synergise with Signature’s kitchen cabinet and whole house customization business. Despite that, management does not expect material contribution from the proposed acquisition in the near term.

Initiate With a SELL and TP of RM0.53

We initiate coverage on Fiamma with a SELL rating and a 12-month target price of RM0.53. Valuation is derived by applying a 8.7x PER based on FY23E EPS which is in-line with Fiamma’s five-year forward mean PE. Regional players (Fig 10) trade at an average PER of 19.0x based on CY22E EPS although are significantly larger on a market capitalisation basis compared to Fiamma. We remain cautious on the uncertainty in E&E retail industry outlook that might impact the group’s profitability moving forward.

Source: Affin Hwang Research - 24 Jun 2022