Fiamma Holdings Bhd (Fiamma) reported a 94.0% YoY decrease in headline net profit to RM1.1m (-84.2% QoQ) for 1QFY24, as the Group recorded lower revenue, dragged by reversal of previously recognised fair value gain. As the financial year end (FYE) of the Group has been changed from 30 Sep 2023 to 31 Dec 2023, we compare it with 1QCY23 (similar period last year ending 31 Mar 2023). After adjusting for non-operating items, core net profit for the quarter was down 28.0% YoY to RM4.0m, mainly due to lower revenue and higher operating expenses. Results were below expectation, accounting for only 14% of our full year estimates. We keep our forecast unchanged however, as we expect better quarters ahead underpinned by new products offering, continued employment and wage growth. We retain our Neutral call with higher target price of RM1.08 (from RM1.00 previously) as we rollover over valuation to FY25F.

• 1QFY24 revenue fell by 23.6% YoY to RM95.6m, mainly attributed to the sharp decline in sales of 65.7% YoY from the property and development segment. This segment contributed about 18.1% of the Group’s revenue this current quarter. However, the decline was partly offset by higher revenue from the trading and services segment which climbed by 5.0% YoY to RM77.1m.

• 1QFY24 core net profit decreased by 28.0% YoY to RM4.0m due to higher operating expenses and weaker margins in all three business segments. Despite recording lower margin on a YoY basis, the trading and services segment is showing signs of recovery on a QoQ basis. Blended gross profit margin for the quarter improved to 27.4%, compared to the 26.9% observed in the immediate preceding quarter.

• Outlook. The consumer sentiment index (CSI) tracked by the Malaysian Institute of Economic Research (MIER) continues to hover below 100 points for the fifth consecutive quarter, with the latest reading at 87.1 points in 1Q2024. While earnings outlook in the near term looks challenging, the Group’s long-term prospects remain positive, underpinned by growing middle class and household income growth, which should lead to stronger consumer spending. Furthermore, the proposed residential development in Jalan Yap Kwan Seng, KL and Johor Bahru are expected to provide further earnings upside to the Group, once launch and sale.

Source: PublicInvest Research - 23 May 2024