17 SEPTEMBER 2014 08:24AM: Fiamma stands to benefit from the housing boom of the last 2-3 years.While its distribution business is experiencing annual resilient growth of 4-13%, property development is a new growth driver. A few strategic land parcels are now held at low costs, which mean high development margins. The company is also in a net cash position. Based on our SOP valuations, the stock could be valued at MYR3.20-3.30. Distribution: a resilient business. Fiamma distributes home appliances and has a property development division, which indirectly and directly ride on the local property cycle respectively. Despite the housing market’s mini ups and downs, its distribution segment has achieved 4-13% growth per annum previously. It has been strong in the home appliances market with a wide distribution network nationwide. This segment typically yields 30-40% gross margins. Property – a new source of growth. Fiamma will see a new growth driver led by its property development wing. The market may not be aware of this business as yet, but it contributes ~25% of total turnover.While Fiamma’s existing Centara project is expected to be completed in Oct/Nov 2014, it has >MYR1bn worth of projects in the pipeline, including MYR600m high-rise developments at Jalan Yap Kwan Seng (Kuala Lumpur) and the MYR400m VIDA residenz (Johor Bahru). By end-2015, management also plans to utilise its land behind Wisma Fiamma for development after an existing warehouse there is moved to Klang. Low land costs creates RNAV re-rating angle. The property development division gives gross margins of 30-35%. This trend is expected to continue as Fiamma’s landbank is carried at low book costs.The most significant contributor to RNAV is the 1.4-acre Jalan Yap Kwan Seng land, with a land cost of only MYR631psf. The current market price for land parcels in the vicinity is already going at above MYR3,000 psf. Net cash now. Fiamma is currently in a MYR54m net cash position. We expect it to gear up gradually to ~20-30% over the next two years in view of its upcoming slew of high-rise projects. Dividend payout should remain at about 30%, translating into a decent yield of almost 4%. MYR3.20-3.30 FV. Fiamma’s land parcels are in deep value while the distribution segment provides stable income growth. Based on our SOP valuations, the stock could be valued at MYR3.20-3.30. It is currently trading at an undemanding 6.2x FY15f P/E
A Beneficiary Of The Housing Boom Company background Fiamma started up marketing mainly the Elba brand of electrical home appliances in 1997. Since then, the company has managed to pick up a number of other brands to widen its distribution reach. Key brands currently carried include Elba, Rubine, Faber, MEC, Tuscani, Haustern and EBAC Home. It also handles agency brands (sole distributorship) such as Omron, Whirlpool and Braun. Given the number of brands it carries, Fiamma has a wide product range to cater for the mass and high-endmarkets. These cover kitchen appliances, pre-fabricated kitchen cabinets, electrical home appliances, bathroom accessories and sanitary ware. Currently, the company has a nationwide distribution network and these products are distributed mainly to electrical shops/outlets and hypermarkets.
While the distribution business has been generating resilient earnings, management decided to have property development exposure a few years ago. In Dec 2008, Fiamma completed the acquisition of two subsidiaries – Uniphoenix Jaya SB and Oaksvilla SB – that own landbank in Kota Tinggi, Johor. Note that property development is not a new venture for the company, as these subsidiaries were previously owned by its founders. Over the years, Fiamma acquired several other land parcels, such as the 1.12 acres at Jalan Tuanku Abdul Rahman and 1.4 acres at Jalan Yap Kwan Seng. Currently, the company’s distribution and property development segments contribute 75% and 25% of the company’s earnings respectively.
Fiamma is now managed by Mr Lim Choo Hong, who is the CEO/group MD of the company. Choo Hong, Mr Lim Soo Kong (non-executive director) and Mr Ngo Wee Bin are the founder members and major shareholders. Choo Hong has more than 30 years of experience in dealing in home appliances. He also has more than 15 years of expertise in property development.
Distribution segment – a resilient but high-margin business Given the 10 brands and the wide range of products it carries, Fiamma’s distribution segment has managed to achieve an average growth of 4-13% per annum over the past 4-5 years. Earnings from this business have been rather resilient despite the yo-y changes in residential property units
Earnings forecasts and valuations Forecasts. Fiamma’s distribution segment is expected to maintain a single-digit growth in FY14 while the earnings from its property development business will largely drive bottomline growth. Going into FY15, the Centara project will be completed, and earnings from VIDA residenz and the Jalan Yap Kwan Seng project will start to kick in. We, therefore, estimate 15% growth in FY15 . This growth is expected to be more material in FY16 as progress billings from the property developments come in higher.Valuations. We value Fiamma at MYR3.20-3.30, based on SOP valuations. Using our FY15 earnings projections, the stock is currently trading at an undemanding FY15f P/E of only 6.2x. We apply a P/E of 8.8x for the company’s distribution division, which is 30% higher when compared with Khind Holdings (KHIN MK, NR)’s 6.8x. This is justifiable given Fiamma’s ability to achieve much higher margins. We believe the stock is undervalued, given its: i) resilient growth in the distribution business and earnings kicker from property development, ii) deep landbank value as land parcels were acquired many years ago – hence significant surplus in RNAV, and iii) high margins from both the distribution and property development businesses.Given Fiamma’s net cash position and consistent dividend payout of 30%, the company’s dividend yield of about 3-4% looks sustainable. We also think there is a scope for a bonus issue, considering its solid balance sheet and shareholders’ funds.This could potentially enhance the liquidity of the stock.
Fiamma stands to benefit from the housing boom of the last 2-3 years.While its distribution business is experiencing annual resilient growth of 4-13%, property development is a new growth driver. A few strategic land parcels are now held at low costs, which mean high development margins. The company is also in a net cash position. Based on our SOP valuations, the stock could be valued at MYR3.20-3.30. Distribution: a resilient business. Fiamma distributes home appliances and has a property development division, which indirectly and directly ride on the local property cycle respectively. Despite the housing market’s mini ups and downs, its distribution segment has achieved 4-13% growth per annum previously. It has been strong in the home appliances market with a wide distribution network nationwide. This segment typically yields 30-40% gross margins. Property – a new source of growth. Fiamma will see a new growth driver led by its property development wing. The market may not be aware of this business as yet, but it contributes ~25% of total turnover.While Fiamma’s existing Centara project is expected to be completed in Oct/Nov 2014, it has >MYR1bn worth of projects in the pipeline, including MYR600m high-rise developments at Jalan Yap Kwan Seng (Kuala Lumpur) and the MYR400m VIDA residenz (Johor Bahru). By end-2015, management also plans to utilise its land behind Wisma Fiamma for development after an existing warehouse there is moved to Klang. Low land costs creates RNAV re-rating angle. The property development division gives gross margins of 30-35%. This trend is expected to continue as Fiamma’s landbank is carried at low book costs.The most significant contributor to RNAV is the 1.4-acre Jalan Yap Kwan Seng land, with a land cost of only MYR631psf. The current market price for land parcels in the vicinity is already going at above MYR3,000 psf. Net cash now. Fiamma is currently in a MYR54m net cash position. We expect it to gear up gradually to ~20-30% over the next two years in view of its upcoming slew of high-rise projects. Dividend payout should remain at about 30%, translating into a decent yield of almost 4%. MYR3.20-3.30 FV. Fiamma’s land parcels are in deep value while the distribution segment provides stable income growth. Based on our SOP valuations, the stock could be valued at MYR3.20-3.30. It is currently trading at an undemanding 6.2x FY15f P/E
The benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) edged down this morning on selective trading as traders remained on sidelines, a dealer said. At 9.15 am, the key index stood at 1,843.72, down 0.06 of a point, after opening slightly higher at 1,844.86.
On the broader market, market breadth was slightly positive with gainers outpacing decliners 177 to 175 while 219 counters were unchanged, 1,052 untraded and 14 others were suspended.
"Sentiment remains cautious ahead of the Bank Negara Malaysia's Monetary Policy Committee meeting outcome later today.
"Market could rebounce shall there be no increase in interest rates," he said, adding that Moody's revised outlook of Malaysia to positive from stable should bode well for the local equity mart.
On other scoreboard, the FBM Emas Index added 2.05 points to 12,892.28, the FBMT100 Index gained 1.67 points to 12,473.91 but the FBM Emas Syariah Index trimmed 3.26 points to 13,153.56.
The FBM 70 added 9.92 points to 14,211.66, the FBM Ace appreciated 0.92 of-a-point to 7,194.88, while on a sectorial basis, the Finance Index shed 3.39 points to 17,247.68, the Industrial Index declined 2.15 points to 3,210.14 and the Plantation Index dipped 9.05 points to 8,362.00.
Among heavyweights, Maybank and Public Bank were flat at RM9.97 and RM18.96, respectively, Digi.com added three sen to RM5.79 and YTL Corporation gained two sen to RM1.68. Actively traded stocks this morning included Nexgram Holdings, KNM Group, Olympia Industries and Reach Energy Bhd-Warrants. – Bernama
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
i3i2i1
4,731 posts
Posted by i3i2i1 > 2014-09-12 08:53 | Report Abuse
@Lim: what is the TP for Fiamma? no research house yet leh....